.,Ml.lSIU;iii;|lumjt;*j.I^^^ 


UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


Digitized  by  tine  Internet  Arciiive 

in  2007  witii  funding  from 

IVIicrosoft  Corporation 


littp://www.arcliive.org/details/businesslawforbuOOcraniala 


BUSINESS    LAW 

FO  R  = 

BUSINESS   MEN 


COVERING    ALL    THE    STATES    AND 
TERRITORIES   IN  THE   UNION 


PREPARED  ESPECIALLY  FOR  BUSY  LAYMEN 


Br 


UTLEY  E.  CRANE,  LL.B.,  B.S. 

Member  of  the  Philadelphia  Bar 


THE    JOHN    C.    WINSTON    COMPANY 

PHILADELPHIA 


T 


CAUTION 

The   entire   contents    of    this    book    are    protected    by    the 

stringent  new  copyright  law,  and  all  persons  are  warned  not  to 

attempt  to  reproduce  the   text,  in  whole  or  in   part,  under 

penalty  of  the  law. 

Copyright  191  i,  by 
The  John  C.  Winston  Co. 


^^^> 


PREFACE 

THE  standard  text  books  on  Commercial  Law  have  invari- 
ably been  designed  for  use  in  business  colleges  and  com- 
mercial law  schools,  and  have  been  limited  in  scope  to 
an  exposition  of  the  legal  principles  involved  in  ordinary  mer- 
cantile transactions. 

Recognizing  that  the  average  business  man  has  neither  the 
opportunity  nor  inclination  to  pursue  a  systematic  study  of 
business  law,  this  work  had  been  specially  prepared  to  meet  the 
requirements  of  the  busy  man  of  affairs.  Omission  of  any  citation 
of  authority  and  all  legal  technicalities  has  been  for  the  purpose 
of  rendering  the  work  interesting  as  well  as  instructive. 
^'^  It  has  been  the  author's  endeavor  to  present  a  concise  and 

jc-  lucid  statement  of  every  essential  requirement  of  the  law  apper- 
taining to  the  manifold  relationships  incident  to  modem  com- 
5"  mercial  enterprise. 

IP  It  is,  moreover,  incimibent  upon  the  average  layman  to  possess 

—^  an  accurate  conception  of  his  legal  rights  and  obligations  in  other 
'^  than  the  mere  commercial  relations  of  life.  The  industrial  ten- 
dencies of  the  present  age  have  made  the  enactment  of  nimierous 
statutes,  regulating  corporate  and  interstate  business,  imperative. 
The  law  of  common  carriers,  anti-trust  legislation  and  kindred 
topics  constitutes  an  important  feature  of  this  book.  Further- 
more, the  additional  inclusion  of  such  subjects  as  the  law  of  domes- 
tic relations,  business  crimes  and  misdemeanors,  executors, 
administrators  and  trustees,  building  and  loan  associations, 
the  law  of  architects  and  builders,  patents,  trade  marks  and  copy- 
rights, etc.,  makes  this  book  both  unique  and  indispensable. 

Numerous  legal  business  forms  will,   it  is  thought,   be  of 
practical  value  to  every  business  man. 

Utley  E.  Crane. 


TABLE  OF  CONTENTS 

PAGE 

CONTRACTS 17 

Law  Classified,  17 — Objects  of  Law,  20 — Con- 
tracts, 21 — The  Formation  of  Contract,  22 — Con- 
tracts OF  Persons  Non  Compos  Mentis,  24 — Offer 
AND  Acceptance,  25 — Consideration,  31 — Promises, 
33 — Contracts  in  Writing,  36 — Reality  of  Con- 
sent, 37 — Duress  and  Undue  Influence,  42 — Legal- 
ity OF  Object,  43 — Operation  of  Contract,  45 — 
Interpretation,  47 — Discharge  of  Contract,  50 — 
Discharge  by  Substituted  Contract,  51 — Discharge 
BY  Breach,  52 — Breach  Arising  from  Impossibility 
of  Performance,  54 — By  Operation  of  Law,  55 — 
Merger,  55 — Remedies  upon  a  Breach  of  Contract, 
55 — Discharge  by  Judgment,  57 — Discharge  by 
Lapse  of  Time,  57 — Summary  as  to  Contracts,  57. 

PARTNERSHIPS 59 

General  Nature  of  a  Partnership,  60 — Liability, 
62 — Powers  of  Partners,  63 — A  Partner's  Power 
TO  Render  the  Firm  Liable  in  Tort,  67 — Powers 
OF  the  Majority,  69 — Rights  and  Remedies  of 
'  Creditors,  69 — Effect  of  a  Novation,  70 — Termi- 
nation OF  Dormant  Partner's  Liability,  71 — Sep- 
arate Creditor's  Remedy,  72 — The  Rights  of  Cred- 
itors in  Equity,  72 — Duties  and  Liabilities  of  Part- 
ners Between  Themselves,  74 — Dissolution  by  Act 
OF  Parties,  77 — Lunacy  of  a  Partner,  77 — Account- 
ing AND  Distribution,  78 — Method  of  Distribu- 
tion, 78 — Repayment  of  Advances,  79 — Interest  on 
Capital,  80 — Adjustment  of  Equities  Between 
Partners,  80 — Interest  Payable  by  a  Partner, 
80 — Cost  of  an  Accounting,  80 — Partnership  Good 
Will,  80 — Appointment  of  Receiver,  81 — Limited 
Partnerships,  82 — Special  Partners,  83 — Partner- 
ship Associations  or  Joint-Stock  Companies,  84 — 
Dissolution  of  Joint-^tock  Companies,  85. 

CORPORATIONS 87 

Definition  of  a  Corporation,  88 — Various  Kinds 
OF  Corporations,  88 — Formations  of  Corporations, 
90 — The  Contract  of  Membership,  93 — Additional 

(7) 


b  TABLE  OF  CONTENTS 

PAGE 

Subscriptions,  94 — Subscriptions  Obtained  by 
Fraud,  95 — Rescision  of  Contract  of  Membership, 
96 — Liability  of  Stockholders,  97 — Transfer  of 
Shares,  98 — Registry  of  Transfers,  99 — Rights  and 
Remedies  of  vStockholders,  100 — Right  to  Receive 
Dividends,  ioi — Right  to  Preemption,  102 — Right 
TO  Examine  the  Company's  Books,  102 — The  Man- 
agement of  Corporations,  103 — Ultra  Vires  Acts, 
105. 

NEGOTIABLE  INSTRUMENTS 107 

Characteristics  of  a  Negotiable  Instrument, 
1 08 — Essential  Elements  of  a  Negotiable  Instru- 
ment, 108— Kinds  of  Negotiable  Instruments, 
109 — Definition  of  a  Promissory  Note,  109 — 
Definition  of  a  Bill  of  Exchange,  109 — Con- 
sideration, III — Competency  of  Parties,  113 — ^An 
Accommodation  Indorser  115 — Time  of  Transfer, 
117 — Rights  of  the  Holder  in  General,  118 — 
Presentment  for  Payment,  119 — Liabilities  of  the 
Parties  to  a  Negotiable  Note,  121 — Liabilities  of 
THE  Acceptor  of  a  Bill  of  Exchange,  121 — Notice 
OF  Dishonor,  123 — Payment  for  Honor,  125 — 
Defenses  Against  Negotiable  Instruments,  126 — 
Defense  of  Incapacity,  126 — Defense  of  Illegality, 
126 — Defense  OF  Extinguishment,  126 — Extinguish-  , 
ment  by  Release,  127 — Personal  Defenses,  127 — 
Discharge  of  Negotiable  Instruments,  129 — 
Checks,  130 — Certified  Checks,  130 — Drafts,  131 — 
Conflict  of  Laws,  131. 

REAL  ESTATE  AND  CONVEYANCING 133 

Composite  Character  of  Same  Property,  135 — 
Lateral  Support,  136 — Drain  and  Drip,  136 — 
Burial  Lots  and  Pews,  136 — Ground  Rents,  137 — 
Rent,  137 — Definition  of  a  Lease,  138 — Implied 
Lease,  138 — Repairs,  139 — Re-Entry,  140 — Power 
to  Mortgage,  140 — Sub-Leasing,  140 — Recovery  of 
Possession  for  Non-Payment  of  Rent,  141 — Goods 
Liable  to  Distress,  142 — Goods  Privileged  from 
Distress,  143 — Proceedings  on  a  Distraint,  144 — 
Penalties  for  Illegal  Distress,  144 — Tender  of 
Rent.  145 — Distraint  of  Goods  Fraudulently 
Removed,  li^ — AproiiT'ONMENT  of  Rent,  146 — 
Reccvep.y  of  Revt  in  "Miscellaneous  Cases,  147 — 
Tenant's   Liability   fojr   Taxes,    147 — Mechanic's 


TABLE  OF  CONTENTS  9 

PAGE 

Liens,  147 — Surrender,  147 — Recovery  op  Posses- 
sion AT  Expiration  of  Term,  148 — Proceedings  to 
Recover  Possession  in  Philadelphia  on  a  Lost 
Lease,  148 — Forcible  Entry  and  Detainer,  149 — 
Negligence  as  to  Leased  Property,  150 — Liability 
TO  Repair  Sidewalk,  151 — Mining  Leases,  151 — 
Directions  in  Renting  Property,  152 — Protection 
IN  Case  of  Fire,  154 — Protection  of  Fixtures  in 
Cases  of  Renewed  Leases,  154 — Miscellaneous 
Precautions,  154 — Conditional  Fees  (Fees-Tail), 
157 — Life  Estates  Created  by  Operation  of  Law, 
158 — Dower,  159 — Statutory  Dower,  159 — Excep- 
tions, 161 — Hereditaments,  163 — Ways  of  Neces- 
sity, 164 — Tenant  at  Will,  165 — Estates  upon 
Condition,  165 — Mortgages,  166 — Equity  op 
Redemption,  166 — Recording,  167 — Lien  of  a 
Mortgage,  168 — Trust  or  Trust  Estates,  168 — 
Estates  of  Future  Enjoyment,  169 — Conveyancing, 
170 — Rights  of  Adopted  Children,  171 — Descent  of 
Property  Under  Intestate  Act,  172 — Collateral 
Descent,  174 — Title  by  Purchase,  176 — Prescrip- 
tion, 176 — Sufficient  Parties,  178— Consideration, 
179 — The  Estate  Conveyed,  179 — Execution,  180 — 
Attestation,  180 — Acknowledgment,  181 — Deliv- 
ery, i8i — Recording,  181 — Lmplied  Covenants,  183 
— Common  Law  Conveyances,  184 — Construction 
OF  Deeds,  185 — Title  by  Matter  of  Record, 
186. 


BANKRUPTCY 189 

Acts  of  Bankruptcy,  190 — General  Assignment  of 
Receivership,  191 — The  Petition,  192 — Who  May 
Become  Bankrupts,  193 — Partners,  194 — Distribu- 
tion, 195 — Exemptions  of  Bankrupts,  196 — Duties 
OF  Bankrupts,  196 — Death  or  Insanity  of  Bank- 
rupts, 197 — Protection  and  Detention  of  Bank- 
rupts, 197 — Suits  by  and  Against  Bankrupts,  198 — 
Compositions  v/ith  Creditors,  198 — When  a  Dis- 
charge IN  Bankruptcy  will  be  Granted,  200 — 
Debts  Affected  by  a  Discharge,  201 — Process, 
Pleadings  and  Adjudications,  202 — Referees,  202 — 
Trustees,  204 — Arbitration  op  Controversies,  205 
— Offenses,  206 — Meetings  of  Creditors,  206 — 
Who  May  File  and  Dismiss  Petitions,  209 — Pre- 
ferred Creditors.  210 — Debts  Which  ^IAV  be 
Proved,  211 — Debts  Which  Have  Priority,  213. 


10  TABLE  OF  CONTENTS 

PAGE 

INSURANCE 214 

First  Form  of  Insurance,  214 — Various  Kinds  of 
Companies,  215 — The  Contract  of  Insurance,  216 — 
Insurable  Interest,  216 — The  Application,  220 — 
The  Consideration  for  the  Policy,  222 — Assign- 
ment, 225 — Cancellation,  227 — Notice  and  Proof 
OF  Death,  227 — Discriminations  Prohibited,  228 — 
Accident  Insurance,  228 — Construction  of  Terms 
in  Accident  Policies,  230 — Notice  or  Proof  of 
Injury  or  Death,  231 — Fire  Insurance,  232 — 
Excepted  Risks,  233 — Description  and  Location 
of  Property,  234 — ^Adjustment  of  Loss,  235 — 
Causes  Rendering  Policy  Void,  235 — The  Com- 
pany's Liability,  239 — Subrogation,  241 — Actions 
BY  and  Against  Insurance  Companies,  241 — Lost 
Policies,  243 — Marine  Insurance,  243 — Implied 
Warranties — Seaworthiness,  244 — Deviation,  244 — 
Legality,  244 — Express  Warranties,  244 — Insur- 
able Interest  as  Applied  to  Marine  Insurance, 
245 — Different  Kinds  of  Marine  Policies,  247 — 
Perils  Covered,  248 — Barratry,  249 — Losses  Not 
Protected,  249 — General  Average,  250 — Volun- 
tary Stranding,  251 — Total  Losses,  251 — Particu- 
lar Average,  253-— Conclusion,  254. 

COMMON  CARRIERS 255 

Classification  of  Common  Carriers,  257 — Eleva- 
tors IN  Office  Buildings,  260 — Commencement  of 
Liability,  261 — Termination  of  Liability,  262 — 
Connecting  Carriers,  262 — "Stoppage  in  Transitu," 
263 — Bills  of  Lading,  264 — Delivery  "C.  O.  D.," 
266 — Common  Carrier's  Liability  for  Damages, 
266 — Liability  as  Bailee,  268 — Contracts  Limiting 
Liability,  269 — By  Public  Notices.  269 — Carrier's 
Lien  for  Charges.  271 — Interstate  Transporta- 
tion, 272 — "Pooling  Freights,"  274 — "The  Rail- 
road Rate  Bill,"  275 — Carriers  of  Passengers,  277 
— Discriminations  Against  Passengers,  281 — Car- 
rier's Duty  to  Provide  Seats,  285 — Passenger's 
Baggage,  285. 

PATENTS 287 

Discovery  and  Invention,  2S7 — Things  not  Patent- 
able, 288 — Basic  Idea  of  the  System,  290 — Specifica- 
tions, 291 — ^Applicant's  Oath,  292 — Costs,  293 — 
Reissue  of  Patents,  293. 


TABLE  OF  CONTENTS  ii 

PAGE 

BANKS  AND  BANKING 294 

Deposits,  295 — Trust  Funds,  296 — The  Subject  op 
Loans,  298 — Loans  and  Discounts,  299 — Security 
POR  Loans,  300 — Checks,  301 — Banking  Regula- 
tions, 306— -Officers  and  Agents,  307 — Directors 
AS  Trustees,  309 — The  Bank  President,  310 — The 
Cashier,  311 — Paying  and  Receiving  Tellers,  312 — 
Savings  Banks,  313 — Capital  Stock  Corporations, 
314 — Officers,  Duties  and  Liabilities,  316 — Clear- 
ing House,  316. 

TRADE-MARKS 319 

What   May   be   Appropriated   as   a   Trade-Mark,      * 
320 — Personal  Names  as  Trade-Marks,  322 — Regis- 
tration   of    Trade-Marks,    324 — Application    for 
Registration,  325 — Duties  of  Registrants,  325 — 
Assignments,  327 — Abandonment,  328. 

COPYRIGHTS 333 

Publication,  335 — Piracy,  337 — How  to  Obtain 
Copyright,  337 — Registering  Copyright  of  Unpub- 
lished Works,  339. 

SALES 340 

Parties  to  the  Contract  of  Sale,  342 — The  Subject 
OF  Sale,  344 — Conditions  and  Warranties — Sales 
by  Samples,  344 — Performance  of  Contract  op 
Sale,  347 — Delivery,  348 — Tender  of  Payment, 
349 — Fraud  and  Mistake,  350 — Sales  by  Agents,  351. 

DOMESTIC  RELATIONS 352 

Earliest  of  Institutions,  353 — Duty  of  Cohabita- 
tion, 353 — Right  of  Support,  354 — Services  of  a 
Wife,  355 — Respective  Property  Interests,  356 — 
Agency,  359 — Rights  and  Liabilities  op  Survivor, 
360 — Parent  and  Child,  361 — Right  to  Child's 
Services  and  Earnings,  365 — Rights  and  Liabilities 
IN  Tort,  366 — Rights  and  Duties  of  Children,  367 — 
Emancipation,  367 — Advancements,  368 — House  of 
Correction — Refuge  —  Huntingdon  Reformatory, 
368 — ^Juvenile  Court,  369 — Guardian  and  Ward,  370 
— Guardianship  in  Socage.  371 — Who  May  be 
Appointed  Guardians,  374 — Particular  Rights  and 
Duties  of  Guardians,  375 — Master  and  Servant, 
376 — Definition,  376 — Formation  of  Relation.  377 
— Implied   Contracts   of   Hiring,   3 So — Statutory 


12  TABLE  OF  CONTENTS 

PAGE 

Regulations,  381 — Termination  of  Contract,  381 — 
Rights  and  Liabilities,  383 — Special  Employment, 
384 — Limitation  on  Master's  Liability,  384 — 
Duties  of  Master  Toward  Servant,  387 — Contribu- 
tory Negligence,  391 — "Fellow-Servants,"  392. 

BUSINESS  CRIMES 395 

Criminal  Conspiracy,  398 — Embezzlement,  400 — 
Forgery,  401 — Uttering  Forged  Instruments,  401 — 
Larceny,  403 — Lost  Property,  405 — Larceny  by 
Bailee,  405 — Libel,  406 — ^What  Constitutes  Libel, 
407 — Privileged  Communications,  409 — Construc- 
tion, 412 — Trespass,  Nuisance,'  etc.,  413 — Nuis- 
ances, 417 — Remedies  for  Nuisances,  422 — Mali- 
cious Prosecution,  424 — Elements  of  Action,  424. 

BUILDING  AND  LOAN  ASSOCIATIONS 426 

Three  Varieties,  427 — Two  Classes  of  Members, 
427 — Method  of  Business,  428 — Sources  of  Profit, 
430 — Membership,  432 — Withdrawals,  435 — Right 
TO  Receive  Loans,  438 — Suits  by  Stockholders, 
439 — Mortgages,  441 — Important  Decisions,  442 — 
Application  op  Stock  Payments  to  the  Extinguish- 
ing OF  THE  Debt,  444 — ^Winding  up  the  Associa- 
tion, 446. 

ARCHITECTS  AND  BUILDERS 447 

Building  Contracts,  447 — Written  Contracts,  449 
-Matters  in  Dispute,  450 — Liability  of  Builder, 
451 — ^An  Architect's  Responsibility,  453 — Penal- 
ties and  Liquidated  Damages,  455 — Abandonment 
of  Contracts,  455 — Architect's  Duty  Toward 
Builder,  459 — Compensation  of  Sub-Contractors, 
462 — Some  Important  Decisions,  464 — Rights  and 
Liabilities  of  Sureties,  465 — Mechanics'  Liens, 
466 — Right  to  a  Lien,  468 — Persons  Entitled  to  a 
Lien,  469 — The  Act  of  1901,  472 — Operation  and 
Effect  of  Lien,  475 — What  the  Lien  Binds,  476 — 
Priorities  of  Liens,  477 — Bond  to  Discharge  Lien, 
479 — Extinguishment  of  Lien,  480 — Release  of 
Lien,  482. 

MONEY 485 

Money  Lent,  486 — Money  Paid,  487 — Numerous 
Contingencies,  491 — Persons  Entitled  and  Liable, 
493. 


TABLE  OF  CONTKXTS  13 

PAOK 

EXECUTORS  AND  ADMINISTRATORS 490 

Definitions,  496 — Two  Classes  of  Estates,  497 — 
Appointment  and  Qualification,  499 — Administra- 
tors, 500 — Next  of  Kin,  502 — Letters  to  Creditor, 
504 — Acceptance  or  Renunciation,  506 — Foreign 
Administration,  506 — Principal  and  Other  Admin- 
istration, 508 — Administrator's  Liability,  510 — 
The  Question  of  Bond,  511 — Joint  Executors  and 
Administrators,  514 — Appraisement,  515 — Assets 
OF  THE  Estate,  519 — Safe-Keeping  of  Estate 
Funds,  520 — Carrying  on  a  Business  of  Decedent, 
521 — Sales  of  Personal  Property,  523 — Interests 
IN  Real  Estate,  524 — Priority  of  Debts,  526 — 
Widow's  Exemption,  526 — Lien  of  Decedent's 
Debts,  528 — Presentation  of  Claims,  529 — Dis- 
puted Claims,  531 — Insolvent  Estates,  531 — Filing 
Accounts,  533— Order  of  Payment,  536 — Payment 
OF  Legacies,  538 — Specific  Legacies,  539 — Succes- 
sive Administrators,  541 — Removal  or  Resignation, 
542 — Actions  by  and  Against  Executors,  543. 

CONSTITUTIONAL  LAW 547 

Articles  of  Confederation,  547 — The  Constitution, 
548 — Three  Governmental  Branches,  550 — Fed- 
eral Constitution  Analyzed,  552 — Powers  of 
Congress,  552 — The  Taxing  Power,  554 — Income 
Tax,  556^3ther  Provisions,  558 — Restraints,  558 — 
Power  to  Regulate  Commerce,  559 — Navigable 
Waters,  561 — Tariffs,  562 — "Trusts,"  567 — ^Anti- 
Trust  Legislation,  568 — Labor  Unions,  570 — Bank- 
ruptcy Laws,  571 — The  Legal  Tender  Acts,  572 — 
Ex  Post  Facto  Laws,  575 — Prohibitions  upon 
States,  575 — Judicial  Interpretation,  579 — The 
Chief  Executive,  582 — The  Electoral  College, 
583 — Qualifications,  586 — Treaty-Making  Power, 
589 — ^Judicial  Power,  591 — Federal  Jurisdiction. 
592 — Trial  by  Jury,  594 — Treason,  595 — The  Fourth 
Article,  595 — Fugitives,  597 — Admission  of  New 
States,  598 — Republican  Form  of  Government 
Guaranteed,  599 — Amendments,  600 — Amendments 
to  the  Constitution,  601. 

INDEX 603 


LIST  OF  FORMS 

OPT.  PAOa 

Bill  of  Sale 17 

Machinery  Lease 17 

General  Release 17 

Apprentice  Agreement 17 

Partnership  Agreement 59 

Partnership  Agreement  Between  Two  Acting  and  One  Dormant 

Partners 59 

Proxy 87 

Stock  Subscription  Prior  to  Organization 87 

Promissory  Note 107 

Collateral  Note 107 

Judgment  Note 107 

Bill  of  Exchange 107 

Deed 144 

Trustee's  Deed 144 

Satisfaction  of  Mortgage 144 

Bond 144 

Mortgage 144 

General  Lease 144 

Form  of  Warranty  Deed 144 

Form  of  Quitclaim  Deed 144 

Notice  by  Tenant  to  Landlord 144 

Farm  Lease 144 

Landlord's  Quit  Notice 144 

Creditor's  Petition  in  Bankruptcy 144 

Proof  of  Secured  Debt 189 

Proof  of  Unsecured  Debt 189 

Proof  of  Debt  due  Corporation 189 

Proof  of  Book  Account 189 

Application  for  Patent 287 

Assignment  of  Patent 287 

Assignment  of  Patent  License 287 

Application  for  Tradesmarks 319 

Assignment  of  Copyright 333 

General  Letter  of  Attorney  in  Pact 340 

General  Power  of  Attorney 340 

Will 35a 

Petition  for  Appointment  of  Guardian 352 

Building  and  Loan  Bond  and  Mortgage 426 

Building  Contract  for  Building  Dwelling  House 447 


BILL  OF  SALE 

l^noto  all  Q^en  bp  tbeise  Ipre^efents,  r/wf 

of 

for  and  in  consideration  of  the  sum  of 
to  in  hand  paid  by 

ol 

at  or  t)efore  the  sealing  and 
delivery  of  these  presents,  the  receipt  whereof  is  hereby  acknowledged, 
have  granted,  bargained,  sold  and  delivered,  and  by  these  presents 
do  grant,  bargain,  sell  and  deliver  unto  the  said 

aU  and  singidar  the 

mentioned  in  the  Schedule  hereunto  annexed,  and  marked 
with  the  letter  A: 

'^o  Ibatie  anU  to  liolD  the  said 


unto  the  said 

heirs,  executors,  administrators  and  assigns,  to  and  for 
own  proper  use,  benefit  and  behoof  forever. 
AND  the  said 

heirs,  executors  and  administrators,  the  said 

unto  the  said  executors, 

administrators  and  assigns,  from  and  against  all  persons  whom- 
soever, shall  and  will  Warrant  and  forever  Defend  by  these  presents. 

Jn  toitne00  tolietCOt,  have  hereunto  set 

hand    and  se(d     the  day  of  in  the  year 

of  our  Lord  one  thousand  nine  hundred  and 
f^tUtt  anb  Brltorrrb      \ 

IN  THE  PRESENCE    OF   US:  ( 


On  the  day  of  the  date  of  the  above  Bill  of  Sale,  livery  of  seisin 
of  the  articles  meniioned  in  the  Schedule  above  referred  to,  was  given 
by  the  said 
to  the  said  in  the  presence  of  us, 

The  day  of  A.  D.  19        personally 

appeared  before  me, 
the  above-named 

and  acknowledged  the  foregoing  instrument  to  be  act  and  deed, 

arid  desired  the  same  might  be  recorded  as 
such,  according  to  law. 

WITNESS  my  hand  and  seal. 
(Follow  with  iDventory  referred  to  in  the  foregoing  Bill  of  Sale.) 


MACHINERY   LEASE 

agreement,  Made  the  day  of 

19     ,   between  of  ,  of  the  first  part, 

manufacturer,  and  of  ,  of  the  second  part, 

mill  owner.     The  said  parties  mutually  agree  as  follows: 

1.  In  consideration  of  the  payments  hereby  reserved,  and  of 
the  performance  of  the  conditions  and  stipulations  hereinafter  con- 
tained, and  on  the  part  of  the  said  party  of  the  second  part  to  be 
performed,  the  said  party  of  the  first  part  will,  on  or  before  the 

day  of  next,  erect  and  place  in  the  mill 

of  the  said  party  of  the  second  part  situated  at  ,  in 

the  county  of  ,  the  steam  engines,  machinery,  apparatus, 

and  plant  particularly  described  in  the  schedule  hereto  annexed,  and 
hereafter  called  the  said  machinery. 

2.  The  said  party  of  the  second  part  shall  hold  and  be  at  liberty 
to  use  the  said  machinery  for  the  term  of  years  from  the 
said                      day  of                      next,  at  the  rent  of 

dollars  per  annum,  payable  half-yearly  on  the  day  of 

,  and  the  day  of  ,  in  each 

year  during  the  continuance  of  the  said  term,  such  payments  making 
in  the  aggregate  the  sum  of  dollars   {price  of  the 

machinery),  the  first  of  such  paymerUs  to  be  made  in  advance  on  the 
said  day  of  next. 

3.  The  said  party  of  the  second  part  shall,  at  his  own  expense, 
from  time  to  time,  replace  and  repair  all  such  parts  of  the  said  madiinery 
as  may  be  broken,  worn  out,  or  damaged,  and  keep  the  same  in  every 
respect  in  good  working  order;  and  he  will  not,  during  the  said  term, 
remove  any  part  of  the  said  machinery  from  the  building  where  the 
same  may  be  erected  without  the  consent  in  writing  of  the  said  party 
of  the  first  part  and  vrill  not  assign,  transfer,  underlet,  or  part  with 
the  possession  of  the  same  either  directly  or  indirectly. 

4.  The  said  party  of  the  seconi  part  will  punctually  pay  the 
rents  hereby  reserved,  and  perform  all  the  conditions  and  stipulations 
herein  contained,  and  on  his  part  to  be  performed;  arui  unit  not  do 
or  suffer  anything  whereby  the  said  machinery  or  any  part  thereof 
shall  or  may  be  seized,  taken  in  execution,  attached,  removed,  destroyed, 
or  injured. 

5.  The  said  party  of  the  second  part  shall  keep  said  machinery 
insured  against  damage  or  loss  by  fire  in  smne  office  to  be  approved 
by  the  said  party  of  the  first  part,  for  at  least  the  sum  of 

dollars,  and  will  pay  the  premiums  for  such  insurance,  and  will  forth- 
with deliver  to  the  said  party  of  the'  first  part  the  policies  of  such 
insurance,  and  the  receipts  for  the  premiums  which  shall  become 
payable  therefor. 

6.  It  is  hereby  expressly  declared  that  the  property  in  said 
machinery  shall  remain  in  the  said  party  of  the  first  part  to  all  intents 
and  purposes:  provided,  that  the  said  machinery  shall  become  the 
absolute  property  of  the  said  party  of  the  second  part  on  the  expiration 
of  the  said  term,  and  payment  of  all  the  rent  hereby  covenanted  to  be 


paid,  and  all  costs,  charges,  and  expenses  provided  for  under  this 
agreement. 

7.  In  case  of  the  ba/nkruptcy  of  the  said  party  of  the  second 
part,  or  in  such  case  he  shall  assign,  transfer,  or  viorigage  the  said 
machinery,  or  any  part  thereof,  or  in  case  he  shall  make  default 
in  performing  and  observing  any  of  the  covenants,  conditions,  or 
agreements  herein  contained,  the  said  aggregate  sum  of 
dollars  shall  become  immediately  payable  to  the  said  party  of  the 
first  part,  and  he  may  at  his  option  enter  said  premises,  a, id  every 
building  in  which  any  part  of  the  said  machinery  may  be,  and  take 
possession  of  and  remove  the  said  machinery,  and  may,  tvithout  the 
consent  of  the  said  party  of  the  second  part,  sell  the  same  as  freely 
as  if  this  agreement  had  not  been  tnade  and  retain  amount  due, 
paying  surplus  to  mill  owner. 

Jn  fcDitnr00,  etc. 


GENERAL  RELEASE 

l&noto  all  ^en  ftp  tftcse  prcisentg,  That  i, 

of  ',   do  hereby  remise,   release,  and  forever  discharge 

of  ,  his  heirs,  executors,  and  administrators, 

of  and  from  all  and  all  manner  of  actions,  and  causes  of  action,  suits, 
debts,  dues,  accounts,  bonds,  covenants,  contracts,  agreements,  judg- 
ments, claims,  and  demands  whatsoever  in  law  or  equity,  which 
against  the  said  I  ever  had,  now  have,  or  which  my  heirs, 

exeoitors,  administrators,  or  assigns,  or  any  of  them,  hereafter  can, 
shall,  or  may  have,  for  or  by  reason  of  any  cause,  matter  or  thing 
whatsoever,  from  the  beginning  of  the  world  to  the  date  of  these  presents. 

Jn  C12UtttU00  ma^tttot,  I  have  hereunto  set  my  hand  and  seed  the 
day  of  ,  19    •. 


APPRENTICE  AGREEMENT 

Ct)i0  JnDenture  witnesseth  that 

by  and  with  the  consent  of 

hath  put  himself,  and  by  these  presents  doth  voluntarily,  and  of  his 
own  free  will  and  accord  put  himself  Apprentice  to 
to  learn  the  art,  trade  and  mystery  of 
and  after  the  manner  of  an  Apprentice  to  serve  the  said 
from  the  day  of  the  date  hereof,  for  and  during  the  term  of 
years  months  days  ending  on  the  day  of 

19  ,  next  ensuing. 

SDntinS  all  of  which  time  the  said  Apprentice  doth  covenant 
and  promise  thai  he  will  serve  the  said 

faithfully,  keep  secrets,  and  obey  lawful  commands; 

T.hat  he  will  do  no  damage  himself,  nor  see  it  done  by  others,  without 
giving  notice  thereof;  that  he  will  not  waste  goods,  nor 

lend  them  unlawfully;  thcit  he  will  not  contract  matrimony  within 
the  said  term;  that  he  mil  not  play  at  cards,  dice,  or  any  other  unlaw- 
ful game  whereby  his  employers  interests  may  be  injured;  that  he  will 
neither  buy  nor  sell  with  his  own  goods  or  the  goods  of  others,  without 
license  from  his  employer  ;  that  he  will  not  absent  himself  day  or 
night  from  his  employers  service,  without  leave,  nor  haunt  ale-houses, 
taverns,  or  play-houses,  but  in  all  things  behave  himself  as  a  faithful 
Apprentice  ought  to  do,  during  the  said  term.     And  the  said 

on  part,  doth  covenant  and  promise, 

that  will  use  the  utmost  of  endeavors  to  teach  or  cause  to 

be  taught  and  instructed,  the  said  Apprentice  in  the  art,  trade,  or 
mystery  of 

and  will  procure  and  provide  for  him  sufficient  meat,  drink,  clothing, 
lodging,  washing  and  mending  fitting  for  an  Apprentice,  during  the 
said  term,  and  will  give  him  schooling  during  the  said  term 

jSlntI  for  the  true  performance  of  all  and  singular  the  covenants 
and  agreements  aforesaid,  the  said  parties  bind  themselves  each  unto 
the  other,  firmly  by  these  presents. 

Jn  dSIttntdd  SSlib^tOC,  the  said  parties  have   interchange- 
ably set  their  hands  and  seals  hereunto.     Dated  the 
day  of  in  the  year  of  our  Lord  one  thousand 

nine  hundred  and 

^tBltb  anb  Srlinrrrb  *) 

IN   THE   PRESENCE    OF    US:  f 


CONTRACTS 

Law  Classified — Objects  of  Law — Formation  of  Contracts — 
Capacity  of  the  Parties — Offer  and  Acceptance — Form  and 
Consideration — Reality  of  Consent — Legality — Operation — 
Interpretation — Discharge. 

THE  subject  of  commercial  law,  involving  the  rules  of  action 
governing  every  variety  of  dispute  arising  out  of  mercan- 
tile transactions,  is  one  of  constantly  increasing  importance, 
in  view  of  the  diverse  complications  incident  to  the  expansion  of 
commercial  activities.  A  general  knowledge  of  that  science  which 
constitutes  the  guardian  of  a  man's  natural  rights  and  the  rule 
of  his  civil  conduct  should,  therefore,  form  a  very  useful  part 
of  every  liberal  education  and  be  of  invaluable  assistance  in 
every-day  business  life. 

As  a  necessary  introduction  to  the  study  of  commercial  law, 
it  will  conduce  to  a  clearer  understanding  of  the  subject  to  con- 
sider briefly  the  origin,  object  and  classification  of  law  in  general. 

Law  has  been  defined  to  be  a  rule  of  action  prescribed  by  a 
superior  power.  Thus  when  God  created  the  world  out  of 
chaos,  he  impressed  upon  matter  certain  principles  (laws)  which 
are  immutable,  governing  both  the  animate  and  inanimate  uni- 
verse. We  are  concerned,  however,  not  with  physical  or  mechan- 
ical laws,  but  only  with  the  rules  or  laws  of  human  action  or 
conduct.  Man,  being  divinely  endowed  with  reason  and  will 
power,  is  enabled  to  distinguish  between  what  is  right  and  what 
is  wrong,  and  to  act  accordingly.  Originally  there  was  no  neces- 
sity for  the  existence  of  any  law  other  than  natural  law,  but  as 
the  population  increased,  it  became  imperative  for  the  protection 
of  life,  liberty  and  property  for  society  to  regulate  the  rights  of 
its  members  by  a  system  of  laws  which  we  call  municipal  law. 

Law  Classified. 

Law  may  be  conveniently  classified  under  the  four  follow- 
ing divisions :  Natural  or  moral  law,  divine  or  revealed  law,  in- 
ternational law  and  municipal  law. 

Natural  law  consists  of  that  body  of  law  appertaining  to 
man  in  a  state  of  nature,  viz.,  the  right  to  live  and  enjoy  per- 
sonal security  and  private  property.    The  divine  or  revealed  law 

»  (17) 


i8  CONTRACTS 

consists  of  the  rules  of  action  revealed  by  God  to  man  through 
the  medium  of  specially-chosen  and  inspired  men.  Throughout 
Christendom  this  revealed  law  is  contained  in  the  Holy  Scrip- 
tures. In  Oriental  countries,  where  different  religious  beliefs 
prevail,  the  source  of  the  revealed  law  depends  upon  the  religion 
followed  in  each  particular  country,  the  Mohammedans  looking 
to  the  Koran,  the  Chinese  to  the  writings  of  Confucius,  the 
people  of  India  and  Japan  to  the  writings  of  Buddha.  Although 
very  few  obey  the  divine  or  revealed  law  in  all  of  its  high  re- 
quirements, it  doubtless  exercises  a  far  more  potent  influence 
upon  the  actions  of  men  than  any  system  of  human  laws  ever 
promulgated,  which,  however,  usually  conforms  therewith.  In- 
ternational law  comprises  the  rules  of  action  adopted  by  independ- 
ent nations  to  regulate  the  relations  between  them.  Municipal 
law  is  defined  to  be  "a  rule  of  civil  conduct  prescribed  by  the 
supreme  power  in  a  State,  commanding  what  is  right  and  pro- 
hibiting what  is  wrong,"  being  applied  to  the  laws  of  a  State 
or  Nation  as  well  as  those  of  a  municipality.  It  is  to  be  observed 
that  municipal  law  does  not  attempt  to  punish  every  wrong,  but 
only  in  so  far  as  such  wrong  affects  or  interferes  with  the  rights 
of  others,  taking  cognizance  only  of  concrete  actions.  Thus  a 
man  may  be  as  morally  depraved  as  possible,  nevertheless  munic- 
ipal law  will  not  interfere  with  him  unless  such  moral  obliquity 
results  in  some"  positive  injury  to  another. 

Municipal  law  is  composed  of  both  the  written  law  (lex 
scripta)  and  the  unwritten  law  {lex  non  scripta). 

The  written  law  comprises  the  laws  or  statutes  enacted  by  the 
legislative  body  of  the  State,  as,  for  example,  the  acts  of  Parlia- 
ment in  England,  the  acts  of  Congress  in  this  country,  the  acts 
passed  by  the  several  State  Legislatures  and  borough  or  city 
ordinances.  The  written  or  statutory  law  is  either  declaratory 
of  the  common  law,  i.  e.,  made  for  the  purpose  of  rendering  more 
definite  the  principles  thereof,  or  is  enacted  for  the  purpose  of 
changing  the  common  law  to  meet  the  exigencies  that  arise  with 
advancing  civilization. 

The  unwritten  law,  which  is  by  far  the  most  extensive 
branch  of  jurisprudence,  is  divided  into  two  divisions,  to  wit, 
the  civil  law  and  the  common  law. 

The  civil  law  is  that  system  of  law  under  which  the  greater 
part  of  Continental  Europe  is  governed,  its  foundation  dating 
from  the  Tarquinian  Kings  of  Rome  and  being  gradually  devel- 
oped until  the  downfall  of  the  Roman  Emnire.  This  body  of 
laws,  consisting  of  the  edicts  of  the  Roman  Kings,  Emperors  and 


CONTRACTS  19 

Senate,  together  with  the  opinions  of  men  learned  in  the  law, 
was  classified  and  embodied  in  a  code  by  the  Roman  Emperor 
Justinian,  which  compilation  of  laws  is  known  as  the  Justinian 
Code.  This  code  was  at  a  much  later  date  revised  by  Napoleon  I, 
the  Code  Napoleon  being  used  in  France  to-day,  and,  with  certain 
modifications,  in  Germany,  Holland,  Spain  and  Italy.  The  civil 
law,  although  radically  different  from  our  own  system,  has 
exercised  considerable  influence  upon  it,  being  introduced  into 
England  in  1066  by  William  the  Conqueror.  The  fact  that 
Louisiana  and  the  greater  part  of  our  territory  recently  acquired 
from  Spain  is  governed  largely  by  the  civil  law,  makes  its  study 
a  matter  of  considerable  present  interest. 

The  Common  Law,  which  is  that  beneficent  system  of  laws 
in  force  throughout  England  and  the  United  States,  was  brought 
here  by  our  English  ancestors  and  had  its  origin  in  ancient  cus- 
toms and  usages.  In  earliest  antiquity,  before  any  necessity  arose 
for  the  organization  of  Courts  of  Justice,  disputes  between  man 
and  man  were  settled  entirely  according  to  custom.  If  it  was 
usual  to  follow  a  particular  course  of  action  under  certain  circum- 
stances, such  a  course  of  action  became  custom  and  would  regu- 
late all  subsequent  situations  of  a  similar  character,  and  anyone 
undertaking  to  follow  a  different  course  of  action  than  that  dic- 
tated by  custom  would  meet  with  the  opposition  of  the  public 
and  would  be  compelled  to  acquiesce  in  the  custom,  which  even- 
tually became  the  law.  When  Courts  of  Justice  were  established, 
these  customs  were  recognized  as  the  law  of  the  land,  but  to  be- 
come law  it  was  necessary  for  a  custom  to  have  existed,  to  use 
a  familiar  phrase,  "from  a  time  whereof  the  memory  of  man 
runneth  not  to  the  contrary."  These  customs,  of  course,  would 
vary  in  different  communities  and  consequently  widely  different 
and  conflicting  customs  existed  in  different  parts  of  England, 
which,  up  to  the  time  of  Alfred  the  Great,  was  divided  into  a 
number  of  small  kingdoms,  each  observing  its  own  particular 
customs  or  laws.  King  Alfred  the  Great,  however,  among  his 
many  other  useful  labors,  undertook  to  digest  the  customs  pre- 
vailing throughout  his  kingdom  for  the  purpose  of  facilitating 
the  administration  of  justice,  which  work  constitutes  the  founda- 
tion of  that  great  system  of  laws  which  regulates  ever>'  English- 
speaking  country  to-day.  After  the  organization  of  Courts  of 
Justice  became  general,  if  a  particular  dispute  arose  between  two 
individuals,  to  settle  which  no  custom  could  be  found,  the  Judge 
before  whom  the  case  was  tried  would  himself  decide  the  case, 
stating  the  reasons  for  his  decision,  which  would  constitute  a 


20  CONTRACTS 

precedent  to  govern  any  subsequent  dispute  involving  the  same 
point  or  points.  The  multitude  of  these  decisions,  the  reports  of 
which  fill  thousands  of  volumes,  forms  the  body  of  our  common 
law,  and  unless  such  opinions  are  reversed  by  an  Appellate  Court, 
they  are  binding  upon  all  Courts  within  the  same  jurisdiction, 
subject  to  the  limitation  that  they  must  not  contravene  the  provi- 
sions of  either  the  State  or  Federal  Constitution. 

Objects  of  Law. 

Having  ascertained  briefly  the  manner  in  which  law  is 
formed,  we  will  next  direct  our  attention  to  an  inquiry  into  the 
general  objects  of  law.  The  objects  of  law  are  (i)  the  protection 
of  rights  and  (2)  the  redress  of  wrongs.  Law  which  sets  forth 
the  rights  possessed  by  man  and  what  constitutes  an  infraction  of 
those  rights,  comprises  what  is  known  as  the  Substantive  Law. 
That  branch  of  law  providing  the  methods  whereby  wrongs  are 
redressed  is  known  as  the  Remedial  Law. 

Substantive  law,  as  above  indicated,  relates  to  rights  which 
the  law  recognizes  and  will  enforce  and  such  legal  wrongs  for 
which  the  law  provides  redress.  Now  rights  may  be  subdivided 
into  the  rights  of  persons,  being  such  rights  as  are  annexed  to 
the  person  of  man,  as  distinguished  from  rights  appertaining  to 
property,  the  rights  of  persons  including  the  rights  growing  out 
of  relation  of  master  and  servant,  the  marital  relation,  guardian 
and  ward,  as  well  as  the  rights  and  liabilities  of  corporations.  The 
law  regulating  the  rights  of  things  defines  the  rights  incident  to 
the  acquisition  and  ownership  of  property  both  real  and  personal. 

Referring  to  the  second  division  of  substantive  law,  wrongs 
are  of  two  kinds :  First,  wrongs  which  affect  the  entire  com- 
munity, known  as  public  wrongs,  commonly  called  crimes;  and, 
secondly,  wrongs  which  affect  an  individual  only,  known  as  pri- 
vate wrongs,  in  legal  parlance  referred  to  as  torts. 

We  observed  above  that  remedial  law  (the  second  general 
division  of  municipal  law)  was  that  branch  of  jurisprudence 
which  provided  the  means  whereby  wrongs  may  be  redressed. 
This  purpose  is  accomplished  by  two  methods,  either  by  appli- 
cation to  what  are  known  as  common  law  Courts,  which  were 
the  oldest  Courts  organized  in  England,  being  rigidly  bound  by 
common  law  precedents,  or  by  application  to  a  Court  of  equity 
upon  purely  equitable  principles.  Courts  of  equity  were  organized 
for  the  purpose  of  administering  exact  justice  between  litigants 
whose  rights  would  otherwise  be  prejudiced  in  a  common  law 


CONTRACTS  21 

Court  by  virtue  of  its  limitations,  being  bound,  as  above  noted, 
strictly  by  precedent,  the  object  of  a  Court  of  equity  being  to 
apply  conscience  to  questions  in  controversy,  rather  than  mere 
formal  rules  from  which  a  common  law  Court  cannot  deviate  and 
which  frequently  fall  short  of  doing  complete  justice.  In  Penn- 
sylvania we  have  no  separate  Courts  of  equity,  our  Common 
Pleas  Courts  administering  equitable  principles  through  common 
law  forms. 

In  the  early  ages  land  was  practically  the  only  property  of 
value,  and  naturally  the  law  first  developed  was  that  relating  to 
real  estate.  However,  when  it  become  impossible  for  everyone 
to  earn  a  livelihood  through  the  tillage  of  the  soil,  and  the  fine 
arts  and  mechanical  trades  were  developed,  the  law  applicable 
to  personal  property  acquired  transcendent  importance,  the  value 
of  personal  property  rising,  as  Chancellor  Kent  observes,  superior 
to  real  property  in  its  influence  over  the  talents,  passions  and 
destiny  of  mankind.  In  the  pursuit  of  trade,  the  necessity  of 
compelling  men  to  fulfil  their  agreements  gave  rise  to  the  law 
of  contracts.  As  commerce  developed  and  expanded  into  for- 
eign countries  it  became  necessary  for  a  man  to  conduct  his 
business  through  the  agency  of  another,  which  gave  rise  to  the 
law  of  agency.  When  it  became  inconvenient  to  make  payment 
in  currency  for  obligations  contracted,  to  facilitate  freedom  of 
exchange,  negotiable  instruments  came  into  vogue.  Furthermore, 
the  expediency  was  soon  recognized  of  combining  capital  and 
labor  for  the  promotion  of  commerce,  and  consequently  the  law 
regulating  business  associations,  such  as  partnerships,  corpora- 
tions and  joint-stock  companies  has  assumed  a  foremost  place 
in  modern  jurisprudence. 

With  the  foregoing  very  brief  synopsis  of  the  origin,  object 
and  classification  of  law,  it  is  hoped  that  the  reader  will  be  better 
able  to  follow  the  subjects  to  be  included  in  the  present  course. 

Contracts. 

Inasmuch  as  the  law  of  contracts  in  its  several  phases  enters 
into  practically  every  business  transaction,  this  subject  should 
naturally  receive  consideration  first,  particularly  as  every  depart- 
ment of  commercial  law  is,  to  a  greater  or  less  extent,  referable 
to  the  theory  of  contract  law. 

Let  us  at  the  outset  clearly  understand  what  is  meant  by  a 
contract.  If  A  agrees  to  sell  to  B  100  barrels  of  sugar,  which  B 
agrees  to  buy,  this  contract  confers  certain  rights  upon  both  par- 


22  CONTRACTS 

ties,  the  right  of  A  to  receive  payment  upon  delivery  of  the  sugar 
and  the  right  of  B  to  have  A  furnish  him  the  same  upon  pay- 
ment of  the  stipulated  price.  The  relation  between  A  and  B  con- 
stitutes what  is  known  as  a  contract.  Every  contract  includes 
two  elements — (i)  agreement  and  (2)  obligation.  A  mere 
agreement  between  two  or  more  parties  does  not  in  itself  con- 
stitute a  contract ;  thus  an  agreement  to  keep  a  social  engagement 
will  not  amount  to  a  contract,  because  it  is  necessary  that  mutual 
obligations  be  imposed  upon  the  parties  in  order  to  create  a 
contract,  which  obligations  are  enforceable  at  law.  To  make  an 
agreement  which  results  in  a  legal  contract  there  must  be  two  or 
more  parties  having  legal  capacity  to  make  a  contract,  and  the 
agreement  which  imposes  mutual  obligations  upon  them  must  be 
definitely  expressed.  Such  expression  of  intention  must  consist 
of  a  definite  offer  made  by  one  party,  which  is  accepted  by  the 
other.  Furthermore,  such  an  agreement  must  either  be  expressed 
in  a  particular  form,  i.  e.,  it  must  either  be  made  under  seal,  or 
there  must  be  a  consideration  to  support  the  agreement,  the  sig- 
nificance of  which  we  will  be  able  to  understand  more  fully  here- 
after. Again,  the  expression  of  agreement  must  not  be  the  re- 
sult of  fraud,  deceit  or  coercion,  it  being  necessary  that  the 
agreement  entered  into  must  be  bona  fide.  Lastly,  the  object  of 
the  agreement  must  not  conflict  with  either  the  statute  law 
or  common  law  of  the  State,  or  be  opposed  to  any  rule  of  pub- 
lic policy. 

We  are  now  in  a  better  position  to  define  a  contract,  which 
may  be  said  to  be  an  agreement,  enforceable  at  law,  made  between 
two  or  more  persons,  in  which  each  party  comes  under  an  obliga- 
tion to  the  other,  and  each  reciprocally  acquires  a  right  to  what- 
ever is  promised  by  the  other. 

The  subject  of  contracts  may  be  considered  under  the  four 
following  divisions :  ( i )  The  formation  of  a  contract,  involving 
a  consideration  of  how  a  contract  is  made;  (2)  the  operation  of 
a  contract,  viz.,  when  made,  whom  does  it  affect;  (3)  the  inter- 
pretation of  a  contract,  which  includes  (a)  the  evidence  required 
to  prove  its  existence,  and  (b)  the  construction  placed  by  the 
Courts  upon  its  terms;  and  (4)  the  discharge  of  a  contract,  or 
how  the  relation  established  by  a  contract  may  be  terminated. 

The  Fonnation  of  Contract. 

The  essential  elements  entering  into  the  formation  of  every 
valid  contract  will  be  considered  with  reference  to: 


CONTRACTS  23 

1.  The  capacity  of  the  parties  to  make  a  contract. 

2.  The  communication  by  the  parties  of  their  intention  by 
an  offer  and  acceptance, 

3.  The  form  and  consideration  required  by  law  as  evidence 
of  the  intention  of  the  parties  to  effect  their  legal  relations. 

4.  The  reality  of  the  consent  embodied  in  the  agreement 
of  the  parties. 

5.  The  legality  of  the  objects  sought  to  be  effected  by  the 
contract. 

The  discussion  of  the  capacity  of  the  parties  to  make  a  con- 
tract involves  in  reality  a  consideration  of  the  various  disabilities 
which  render  certain  classes  of  people  incapable  of  binding  them- 
selves by  a  promise  or  of  enforcing  a  promise  made  to  them,  being 
exceptions  to  the  general  rule  that  anybody  may  bind  himself  by 
a  contract. 

The  principal  disabilities  disqualifying  a  man  from  entering 
into  a  contract  relate  to  infancy  and  lunacy,  the  common-law  re- 
striction against  the  contractual  capacity  of  married  women  being 
largely  removed  by  statute,  so  that  to-day  a  married  woman  has 
the  same  right  to  contract  as  any  other  individual,  with  the  ex- 
ception that  she  cannot  become  an  accommodation  indorser,  guar- 
antor or  surety  for  another. 

It  is  a  well-established  rule  of  common  law  that  no  one  under 
the  legal  age  of  majority  can  enter  into  a  contract  that  will  be 
binding.  The  age  of  majority  in  Pennsylvania  is  twenty-one 
years  in  both  males  and  females,  although  in  several  of  the  States 
the  age  of  majority  in  the  female  is  reached  at  eighteen.  Majority 
is  reached  on  the  first  minute  of  the  day  preceding  the  twenty-first 
birthday. 

If  a  contract  is  entered  into  by  a  minor,  the  contract  is  not 
necessarily  void,  but  remains  in  suspense,  as  it  were,  the  minor 
having  the  right  to  ratify  the  contract  upon  attaining  his  majority, 
or  he  may  repudiate  his  contract  at  any  time  during  minority, 
or  upon  reaching  the  age  of  twenty-one  years,  or  within  a  reason- 
able time  thereafter;  otherwise  he  will  be  deemed  to  have 
impliedly  ratified  the  contract.  For  example,  A  being  a  minor, 
say  twenty  years  old,  purchased  an  automobile,  agreeing  to  pay 
therefor  the  sum  of  $2,500;  the  automobile  is  accidentally 
destroyed,  whereupon  the  infant  decides  to  repudiate  his  con- 
tract. The  seller  of  the  machine  has  no  redress  whatever,  as  the 
contract  was  not  binding  upon  the  minor.  If,  however,  the 
machine  had  not  been  destroyed,  the  vendor  could  recover  its 
possession  upon  refusal  of  payment,  or,  if  wilfully  destroyed. 


24  CONTRACTS 

could  obtain  compensation  in  damages  under  certain  circum- 
stances, or  the  vendor  of  the  machine  could  have  the  minor 
arrested  for  a  misdemeanor,  but  no  action  ex  contractu  would  lie 
on  account  of  the  contract  having  been  made  with  a  minor. 

A  minor  must,  upon  reaching  the  age  of  twenty-one  years, 
either  repudiate  or  ratify  his  contract,  when  it  will  date  back  to 
the  time  of  the  original  agreement.  If  the  contract  of  an  infant 
has  been  executed  during  minority,  it  will  be  necessary  for  the 
infant  to  repudiate  his  bargain  within  a  reasonable  time  after 
reaching  his  majority,  otherwise  the  contract  will  be  deemed 
to  have  been  ratified.  If,  however,  the  contract  at  the  time  the 
infant  attains  his  majority  remains  executory — that  is,  if  neither 
party  has  performed  his  part  of  the  agreement — the  contract  is 
deemed  to  have  been  repudiated  unless  the  minor  takes  positive 
steps  to  ratify  the  contract  promptly.  This  is  an  important 
distinction  which  should  carefully  be  borne  in  mind. 

There  are  two  classes  of  contracts  into  which  a  minor  may 
enter  which  will  be  binding  upon  him,  the  exceptions  being  con- 
tracts for  necessaries  and  marriage  contracts,  the  latter  class 
of  contracts  being  subject  to  certain  limitations,  which  it  is  un- 
necessary to  discuss  in  a  course  of  this  character. 

The  law  holding  a  minor  responsible  on  account  of  his  con- 
tracts for  necessaries  is  made  for  the  benefit  and  protection  of 
the  minor,  who  otherwise  might  be  unable  to  obtain  the  neces- 
sities of  life  in  the  midst  of  plenty.  An  important  question  arises 
in  this  connection  in  regard  to  what  constitutes  necessaries.  This 
depends  entirely  upon  the  station  or  position  in  life  occupied  by 
the  infant.  Ordinary  articles  of  wearing  apparel,  lodging  and 
board,  educational  and  medical  expenses,  etc.,  are  generally  re- 
garded as  necessaries  for  which  an  infant  is  bound  to  pay.  A 
salesman  should  always  be  on  his  guard  when  dealing  with  an 
infant.  Articles  which  would  be  regarded  as  necessary  for  a  uni- 
versity student  would  not  be  considered  necessary  in  the  case  of 
a  plumber's  apprentice.  Every  case  depends  upon  its  own  par- 
ticular circumstances,  and  a  Court  is  inclined  to  regard  as  neces- 
saries only  such  articles  as  are  essential  to  the  comfort  of  the 
infant,  taking  into  consideration  the  infant's  position  in  life. 

Contracts  of  Persons  Non  Compos  Mentis. 

A  Court  of  Law  will  further  protect  all  persons  of  unsound 
mind  from  the  effect  of  contracts  entered  into  by  them ;  but,  as 
in  the  case  of  minors,  there  are  certain  exceptions  to  the  gen- 


CONTRACTS  25 

eral  rule.  Let  us  ascertain,  therefore,  how  far  this  protection 
extends. 

If  at  the  time  of  entering  into  a  contract  one  of  the  parties 
thereto  was  incapable  of  understanding  the  purport  of  his  act, 
which  fact  was  known  to  the  other  party  to  the  contract,  it  would 
not  be  binding  upon  the  lunatic.  In  Pennsylvania  the  law  is  well 
settled  that  the  contract  of  a  lunatic  is  not  binding  upon  him  if 
the  other  party  knew  of  his  insanity,  or  if  it  had  been  judicially 
declared  that  the  party  was  insane.  A  temporary  loss  of  reason 
will  not,  however,  affect  a  contract  made  during  a  lucid  interval. 
One  who  entered  into  a  contract  while  insane  may  upon  re- 
gaining sanity  ratify  his  act.  A  lunatic  is  bound  by  his  contracts 
for  necessaries,  as  in  the  case  of  infants. 

Intoxication,  depriving  a  man  temporarily  of  his  reason,  is 
another  defense  frequently  set  forth  in  an  action  on  a  contract, 
and  the  law  will  not  tolerate  advantage  being  taken  of  a  man  suffi- 
ciently under  the  influence  of  liquor  as  not  to  be  sensible  of  his 
acts.  A  contract  made  by  an  intoxicated  person  may  subse- 
quently be  avoided  or  affirmed  by  him,  but,  as  there  are  several 
degrees  of  intoxication,  a  Court  is  very  loath  to  allow  a  man 
to  avail  himself  of  this  defense  unless  he  can  clearly  establish 
that  he  was  unable  to  transact  business  at  the  time  the  contract 
was  made. 

The  two  remaining  exceptions  to  the  rule  that  everybody 
may  enter  into  a  contract  apply  to  alien  enemies  and  corpora- 
tions. Alien  enemies  have  no  standing  in  our  Courts,  and  con- 
sequently their  contracts  are  unenforceable.  A  corporation  can- 
not enter  into  a  contract  not  germane  to  the  business  authorized 
by  its  charter,  such  contracts  being  ultra  vires  and  void. 

Offer  and  Acceptance. 

In  order  to  create  a  contract  there  must  be  a  definite  ex- 
pression of  the  agreement  between  the  parties  thereto.  This  ex- 
pression of  agreement  consists  in  an  offer  made  by  one  party 
which  is  accepted  by  the  other,  and  is  ultimately  reducible  to  ques- 
tion and  answer.  If  A  agrees  to  purchase  from  B  a  property 
worth  $10,000,  the  agreement  can  be  traced  to  a  moment  when  B 
said  to  A,  "Will  you  buy  my  property  for  $10,000?"  and  A  replies, 
"I  will."  If  you  take  up  a  book  or  other  wares  from  a  tradesman 
without  making  any  agreement  as  to  the  price,  the  tradesman 
in  displaying  his  wares  says  in  reality,  "Will  you  buy  my  goods 
at  my  price  ?"  and  you  by  taking  them  promise  to  do  so,  and  hence 
become  liable  to  pay  therefor. 


26  CONTRACTS 

It  should  be  carefully  borne  in  mind  that  if  either  the  oflfer 
or  acceptance  is  indefinite,  in  other  words,  if  the  minds  of  the 
contractmg  parties  do  not  meet  by  entertaining  a  common  in- 
tention with  reference  to  their  agreement,  no  contract  is  created. 
For  example,  if  A,  who  owns  two  automobiles,  should  say  to  B, 
'T  will  sell  you  either  of  my  machines  for  $2,000,"  and  B  re- 
plied by  saying:  "I  accept  your  offer,"  there  would  be  no  con- 
tract between  them  because  the  acceptance  was  indefinite.  If, 
however,  B  in  accepting  A's  offer  indicated  the  particular  machine 
he  desired  to  buy,  the  contract  would  be  valid.  It  can  therefore 
be  laid  down  as  a  general  rule  that  if  an  offer  is  made  in  the 
alternative  the  acceptance  must  indicate  which  alternative  is 
accepted,  in  order  to  make  a  binding  contract. 

It  is  necessary,  however,  that  an  offer  be  free  from  all  am- 
biguity, otherwise  even  a  definite  acceptance  will  not  create  a 
contract.  A  writes  a  letter  to  B  stating:  "We  have  a  few  cars 
of  bituminous  coal  which  we  would  be  willing  to  sell  you,"  nam- 
ing a  price.  B  replied,  "I  accept  and  will  take  fifty  cars."  Query : 
Has  a  contract  been  made  between  A  and  B  ?  In  this  illustration 
no  contract  is  created,  for  the  reason  that  A  did  not  offer  to  sell 
any  specific  number  of  cars,  "a  few  cars"  being  very  indefinite. 
Presuming  A  only  had  twenty-five  cars,  it  is  clear  that  he  would 
not  be  liable  on  his  offer  for  a  greater  number.  Consequently  B, 
by  ordering  a  certain  number  without  knowing  how  many  were 
included  in  A's  offer,  could  not  hold  A  liable  for  breach  of  con- 
tract. A  careful  business  man  will  always  observe  the  necessity 
of  seeing  that  both  the  offer  and  acceptance  are  definite  in  their 
terms. 

Let  us  next  consider  the  manner  in  which  an  offer  and  ac- 
ceptance may  be  made.  A  contractual  relation  may  be  entered, 
into  either  by  words  or  conduct.  If  A  asks  B  to  work  for  him  for 
hire,  by  merely  doing  the  work,  B  accepts  A's  offer  and  is  entitled 
to  be  paid  for  his  services.  As  a  matter  of  fact,  if  A  merely  per- 
mits B  to  do  certain  work  for  his  benefit  under  such  circumstances 
that  no  reasonable  man  would  suppose  that  B  was  doing  the  work 
for  nothing,  A  would  be  liable  to  pay  therefor.  The  doing  of  the 
work  is  the  offer,  the  permission  to  do  it  or  the  acquiescence  in 
its  being  done  is  the  acceptance.  Upon  the  same  principle,  if  A 
delivers  certain  goods  to  B's  residence  which  goods  B  accepts  and 
uses,  B  will  be  liable  ttD  pay  what  the  goods  are  worth. 

The  offer  and  acceptance  must  not  only  be  definite,  but  the 
acceptance  is  required  to  be  unconditional  and  identical  with  the 
terms  of  the  offer.    To  illustrate  this  principle,  if  A  should  oflFer 


CONTRACTS  27 

to  sell  B  a  certain  piece  of  property  for  a  certain  sum,  and  B 
should  reply  by  stating,  "I  will  accept  upon  terms  to  be  agreed 
upon  later,"  no  contract  would  be  made  because  B's  acceptance, 
which  included  a  condition,  was  not  absolute.  Similarly,  if  a 
party  in  accepting  an  offer  to  purchase  a  bill  of  goods  stipulates 
the  manner  in  which  payment  is  to  be  made,  there  would  be  no 
contract,  on  account  of  the  attempt  to  introduce  new  terms  into 
the  agreement  through  the  acceptance,  which  in  reality  would 
be  making  a  new  offer. 

Although  a  definite  offer  must  be  made  by  an  ascertained 
person,  it  need  not  be  made  to  any  particular  individual,  but  may 
be  made  to  the  public  in  general.  However,  to  form  a  contract, 
such  offer  must  be  accepted  by  a  definite  or  particular  person. 
A  newspaper  advertisement  offering  a  reward  for  the  return  of 
a  lost  article  or  for  the  arrest  and  conviction  of  a  criminal  is  an 
instance  where  an  offer  is  made  to  the  public  in  general.  The  con- 
tract is  not  completed,  however,  until  an  ascertained  person  ac- 
cepts, which  is  done  when  the  lost  article  is  returned  or  the  crim- 
inal arrested  and  convicted. 

Suppose,  however,  that  a  person  performs  an  act  contem- 
plated in  the  offer  of  a  reward,  but  in  ignorance  of  the  offer; 
can  such  person  recover  the  reward  ?  There  is  considerable  con- 
flict of  authority  upon  this  point,  but  it  is  fairly  well  settled  that 
the  reward  cannot  be  recovered  because  a  man  cannot  accept 
an  offer  regarding  the  terms  of  which  he  was  ignorant,  which 
appears  to  be  eminently  logical. 

Before  a  contract  is  complete  the  acceptance  must  be  com- 
municated to  the  offeror  (the  party  making  the  offer).  Con- 
siderable litigation  has  arisen  when,  through  the  fault  of  neither 
party,  the  acceptance  never  reaches  the  offeror.  It,  therefore, 
becomes  important  to  ascertain  when  an  acceptance  is  communi- 
cated in  a  manner  to  make  the  contract  binding.  The  rule  may 
be  stated  to  be  that  the  contract  is  complete  at  the  time  when 
the  offeree  (the  party  to  whom  the  offer  is  made)  accepts  the 
offer  in  the  manner  indicated  by  the  offeror,  it  being  immaterial 
whether  or  not  the  acceptance  actually  reaches  the  latter.  To 
more  fully  understand  this  statement  of  law,  consider  the  fol- 
lowing illustration :  A,  an  insurance  company,  makes  an  offer 
to  insure  B's  property  on  January  i,  1907.  On  January  15.  B 
accepts  A's  offer  by  letter,  inclosing  a  check  covering  the  first 
premium.  The  letter  of  acceptance  reached  the  office  of  the 
company  on  January  17,  whereas  on  January  16  B's  property  was 
completely  destroyed  by  fire.     In  this  case,  if  the  contract  was 


28  CONTRACTS 

complete  when  the  letter  of  acceptance  was  mailed,  the  insurance 
company  would  be  liable  on  the  policy;  if  not  complete  until  Jan- 
uary 17,  the  date  the  acceptance  was  received  by  the  cOiUpany, 
the  loss  would  fall  on  the  owner  of  the  property.  The  Courts  have 
decided  that  the  mailing  of  the  letter  of  acceptance  closed  the 
contract,  and  that  consequently  the  company  was  liable  for  the 
loss. 

The  above  stated  rule  frequently  operates  as  a  hardship  upon 
the  offeror,  as  is  shown  by  the  case  where  A  offers  to  sell  B  a 
certain  quantity  of  lumber  for  so  much  per  thousand  feet,  which 
offer  B  immediately  accepts  by  letter,  which  miscarries  in  the 
mails.  A  not  having  heard  from  B,  concludes  that  he  does  not 
want  the  lumber,  and  forthwith  sells  the  same  to  C.  B,  having 
accepted  A's  offer,  relies  upon  him  to  carry  out  his  contract. 
This  case  presents  a  very  interesting  situation,  but  it  is  well 
settled  that  the  party  making  the  offer  is  responsible  for  any 
miscarriage  of  the  acceptance,  because  the  offeror  is  the  one  who 
voluntarily  acts,  and,  therefore,  he  assumes  the  risk  that  an  ac- 
ceptance communicated  in  a  regular  manner,  or  any  special  man- 
ner indicated  by  him,  will  reach  him. 

If,  on  the  other  hand,  instead  of  the  letter  of  acceptance 
being  delayed,  the  letter  containing  the  offer  is  postponed  in  de- 
livery, a  somewhat  different  situation  arises.  If  the  commodity 
sought  to  be  sold  is  of  a  perishable  nature,  a  duty  is  imposed  upon 
the  offeree  to  observe  the  date  of  the  letter  containing  the  offer. 
If  the  letter  is  not  received  for  a  considerable  time  after  its  date, 
an  acceptance  will  not  be  binding  upon  the  offeror. 

We  have  observed  that  the  offeree  is  bound  to  accept  the 
offer  in  the  manner  indicated  by  the  offeror.  A,  being  a  feed 
dealer,  sent  a  message  to  B  offering  to  sell  him  feed,  requesting 
that  an  answer  be  sent  back  to  him  by  A's  delivery  wagon.  B, 
thinking  the  acceptance  would  be  received  sooner  by  mail,  mailed 
his  acceptance.  The  delivery  wagon  returned  first,  however, 
and  A,  not  receiving  a  reply  in  accordance  with  the  offer,  sold 
the  feed  to  C.  B,  having  disregarded  A's  instructions,  could 
not  recover  on  the  contract.  His  acceptance  should  have  been 
sent  back  with  the  delivery  wagon,  the  rule  being  that  where  the 
offeror  indicates  a  special  manner  in  which  the  offer  shall  be  ac- 
cepted, the  acceptance  to  be  binding  must  be  made  accordingly. 
The  postoffice  is  the  ordinary  means  of  communication,  and 
every  person  who  gives  another  the  right  to  communicate  with 
him  gives  him  the  right  to  communicate  with  him  in  the  ordinary 
manner.     Hence,  when  a  man  posts  a  letter  containing  an  ac- 


CONTRACTS  29 

ceptance  of  an  offer  he  has  accepted  in  the  ordinary  manner,  and 
the  contract  is  complete  at  that  moment. 

The  above-stated  rule  that  the  mailing  of  a  letter  of  accept- 
ance concludes  the  contract  is  subject  to  an  important  qualifi- 
cation. If,  after  mailing  his  acceptance,  the  offeree  decides  to 
revoke  the  same  he  may  do  so,  provided  his  revocation  reaches 
the  offeror  before  his  letter  of  acceptance  is  actually  received. 
The  mailing  of  the  letter  of  acceptance,  as  we  have  learned,  com- 
pletes the  contract,  but  only  in  so  far  as  the  offeror  is  con- 
cerned, the  offeree  not  being  bound  until  his  acceptance  is 
received  by  the  offeror.  ' 

The  offer  may  also  be  withdrawn  at  any  time  before  the 
acceptance  is  made.  You  offer  to  sell  me  a  certain  article  and 
grant  me  the  privilege  of  considering  the  matter  until  a  certain 
hour  on  the  following  day.  At  the  time  appointed  I  call  upon  you 
for  the  purpose  of  accepting  your  offer,  but  before  I  communi- 
cate my  intention  to  you,  you  withdraw  your  offer.  No  contract 
would  exist  in  this  case,  because  no  legal  obligation  is  imposed 
upon  a  man  by  virtue  of  an  offer  made  to  another,  and  the 
offeror  can  always  recall  his  offer  any  time  before  acceptance. 

If  no  time  is  stipulated  within  which  an  acceptance  must  be 
made,  the  offer  will  lapse  after  the  expiration  of  a  reasonable 
time,  which  is  determined  according  to  the  circumstances  of  the 
case.  An  offer  also  lapses  upon  the  death  of  either  party  before 
acceptance. 

A  certain  class  of  contracts  are  made  by  the  delivery  of  a 
document  stating  the  general  terms  upon  which  the  party  de- 
livering it  will  enter  into  the  proposed  contract.  If  it  is  ac- 
cepted without  objection  by  the  party  to  whom  it  is  tendered, 
it  is  binding  upon  him  whether  or  not  he  informs  himself  of  its 
contents.  This  is  an  apparent  exception  to  the  rule  that  the  par- 
ties must  entertain  a  common  intention  with  reference  to  the 
subject  matter  of  their  agreement.  In  the  case  of  railroad  and 
steamship  tickets,  etc.,  the  terms  of  the  offer  are  frequently  not 
contained  upon  the  face  of  the  contract,  and  it  is  quite  common 
for  a  man  to  overlook  reading  the  terms  and  conditions  thereof. 
To  cover  this  class  of  cases,  the  law  has  been  established  to  the 
effect  that  when  a  man  accepts  a  document  which  purports  to 
contain  the  terms  of  an  offer,  the  acceptance  thereof  is  an  ac- 
ceptance of  all  the  terms  and  conditions  contained  upon  it  and 
he  becomes  bound  thereby. 

Having  brought  the  contracting  parties  together  by  an  agree- 
ment expressed  in  a  definite  offer  and  acceptance,  further  evi- 


30  CONTRACTS 

dence  of  the  intention  of  the  parties  is  yet  required  before  an 
obHgation  will  be  recognized  as  lawfully  binding  upon  the  parties. 
To  constitute  a  binding  agreement,  some  consideration  must  be 
given  as  compensation  for  the  promise  contained  in  the  con- 
tract, or  certain  solemnity  must  attach  to  the  expression  of  in- 
tention to  give  effect  to  the  contract,  the  latter  requirement  being 
complied  with  by  making  the  contract  under  seal.  In  the  early 
development  of  the  Roman  and  English  law,  the  form  in  which 
an  agreement  was  expressed  was  the  most  important  element. 
Originally  the  use  of  a  seal  was  the  only  method  whereby  an 
executory  contract  could  be  made  binding.  Later  the  doctrine 
of  consideration  assumed  predominant  importance.  Contracts 
are,  therefore,  divisible  into  two  classes — (i)  formal  contracts, 
the  validity  of  which  depend  upon  the  form  in  which  they  are  ex- 
pressed, and  (2)  simple  contracts,  the  validity  of  which  depend 
upon  the  presence  of  consideration. 

Formal  contracts  are  again  divided  into  contracts  of  record 
and  contracts  under  seal.  The  record  of  a  judgment  properly 
entered  in  a  Court  of  Justice,  the  obligation  being  enforceable 
by  order  of  the  Court  and  requiring  none  of  the  characteristics 
of  a  contract,  is  what  is  known  as  a  contract  of  record. 

A  contract  under  seal  is  one  which  has  been  reduced  to  writ- 
ing and  signed  and  sealed  by  either  one  or  both  of  the  contract- 
ing parties.  In  this  class  of  contracts  the  party  executing  the 
contract  must  attach  a  seal  opposite  his  signature.  In  olden 
times  this  seal  consisted  of  a  wax  impression  and  is  still  used 
upon  many  deeds,  wills  and  other  important  documents.  No  par- 
ticular form  of  seal  is  necessary,  a  mere  pen  mark  an  eighth  of 
an  inch  long  having  been  decided  by  the  Supreme  Court  of  Penn- 
sylvania to  be  a  sufficient  seal.  If  the  contract  concludes  with  the 
words,  "Signed,  sealed  and  delivered,"  or  similar  phraseology, 
any  legible  marks  obviously  intended  to  represent  a  seal  will  be 
sufficient.  If  a  contract  required  or  intended  to  be  made  under 
seal  omits  a  proper  seal,  the  contract  will  be  treated  as  a  simple 
contract  and  require  a  consideration  to  support  it.  A  contract 
tinder  seal  is  held  binding  in  the  absence  of  consideration  on  the 
ground  that  when  a  man  places  his  seal  upon  a  contract  he  does 
so  only  upon  proper  reflection  and  deliberation,  which  raises  the 
presumption  that  he  has  received  an  adequate  consideration  for 
his  act.  The  most  important  class  of  contracts  that  are  valid 
only  if  made  under  seal  comprises  deeds  for  the  conveyance  of 
real  estate,  which  must  not  only  be  signed  and  sealed,  but  also  de- 
livered before  any  rights  are  conferred  by  them.    A  deed  or  other 


CONTRACTS  31 

document  delivered  to  a  third  party  to  hold  pending  the  per- 
formance of  certain  conditions,  upon  which  it  is  to  be  delivered  to 
the  party  entitled  thereto,  is  said  to  be  in  escrow. 

We  noted  above  that  a  mere  gratuitous  promise  is  not  binding 
unless  made  under  seal.  The  best  illustration  of  such  a  promise 
is  furnished  in  ihe  case  of  a  bond.  A  bond  is  a  sealed  instrument 
containing  a  promise  to  pay  a  stipulated  sum  of  money,  the 
effect  of  which  ceases  upon  the  performance  by  the  party  execut- 
ing the  bond  of  the  condition  or  conditions  contained  therein. 
There  are  two  general  classes  of  bonds — (a)  bonds  executed 
for  the  faithful  performance  of  duty,  as  in  the  case  of  a  treasurer 
of  a  corporation,  who  gives  a  bond  in  a  large  sum  of  money, 
containing  the  proviso  that  if  he  faithfully  performs  the  duties 
of  his  office  the  obligation  contained  in  the  bond  is  to  become 
void;  (b)  bonds  given  to  secure  a  debt.  For  example,  suppose  A 
owes  B  $1,000,  which  he  promises  to  pay  by  July  i,  1907.  A, 
for  the  protection  of  B,  executes  a  bond,  obligating  himself  to 
pay  $2,000  (double  the  amount  of  the  indebtedness),  said  bond 
containing  the  provision  that  if  he  satisfy  the  indebtedness  on  or 
before  July  i,  1907,  the  bond  is  to  become  void.  This  bond  is 
usually  accompanied  by  a  warrant  of  attorney,  in  which  the  party 
executing  the  bond  authorizes  the  other  party  to  enter  judgment 
in  any  Court  of  record  for  the  full  amount  of  the  bond,  provided 
the  obligation  set  forth  therein  is  not  fulfilled,  which  judgment 
can  be  executed  upon  the  property  of  the  party  executing  the 
bond.  One  should  be  very  careful  before  giving  a  bond  of  this 
kind,  as  it  is  the  most  binding  obligation  to  which  a  man  can 
subject  himself. 

In  addition  to  this  class  of  contracts  there  are  a  great  many 
contracts  made  under  seal  for  the  purpose  of  adding  precision 
or  extra  solemnity  to  the  transaction.  This  is  done  more  fre- 
quently when  doubt  exists  about  the  presence  of  consideration  or 
where  the  consideration  is  desired  to  be  kept  secret.  Contracts 
of  any  unusual  importance  should  always  be  made  under  seal  as 
a  matter  of  precaution. 

Consideration. 

By  far  the  most  common  and  important  class  of  contracts 
is  the  siinple  or  patrol  contract,  which  requires  the  presence  of 
consideration  to  render  the  same  valid.  It  is  somewhat  difficult 
to  say  how  consideration  came  to  form  the  basis  upon  which  the 
validity  of  a  contract  not  under  seal  is  established.     Courts  of 


32  CONTRACTS 

equity  not  being  bound  by  strict  common  law  rules  endeavored  to 
find  evidence  of  a  man's  intentions  in  the  practical  results  to  him 
of  his  acts  or  promises,  and  hence  in  the  case  of  informal  or 
patrol  contracts,  the  question  was  asked,  what  advantage  is  gained 
or  detriment  suffered  on  account  of  the  promise  made,  and  if 
there  was  a  quid  pro  quo  for  the  promise,  a  consideration  was 
said  to  exist,  and  the  contract  thereupon  became  enforceable. 

Consideration  is  defined  to  be  "any  benefit  to  the  promisor 
or  any  detriment  to  the  promisee."  The  benefit  must  come  from 
the  party  to  whom  the  promise  is  made  (the  promisee)  ;  the 
detriment  must  be  suffered  by  the  party  making  the  promise  (the 
promisor).  The  simplest  illustration  of  this  definition  is  afforded 
by  the  case  of  a  promise  made  by  A  to  deliver  to  B  one  hundred 
bales  of  cotton  for  a  stipulated  price.  The  benefit  accruing  to  A, 
which  is  necessary  to  give  validity  to  this  promise,  is  the  price 
agreed  to  be  paid  by  B.  The  detriment  suffered  by  B  consists 
in  the  fact  that  he  must  pay  the  price  for  the  cotton.  Thus  it 
will  be  seen  that  the  benefit,  in  the  nature  of  the  price  paid  by  B, 
comes  from  the  promisee,  and  the  detriment  imposed  is  the 
obligation  to  pay  the  price  upon  delivery  of  the  bales  of  cotton. 
A  promise  in  the  eyes  of  the  law  is  a  detriment  if  it  imposes  legal 
responsibility  upon  the  party  making  it.  This  doctrine  of  con- 
sideration is  to-day  applied  to  every  contract,  and  may  be  said  to 
form  the  foundation  of  our  present  law  of  contract. 

The  consideration  may  be  either  the  doing  of  a  present  act, 
as,  for  example,  the  payment  of  a  sum  of  money,  or  the  promise 
to  do  a  future  act,  such  as  a  promise  of  marriage. 

The  consideration  in  a  contract  need  not  be  commensurate 
with  the  benefit  derived,  a  sufficient  consideration  existing  if 
there  has  been  some  legal  benefit  enjoyed  by  one  party  and  some 
legal  detriment  suffered  by  the  other,  however  insignificant.  The 
consideration  must  not,  however,  be  so  grossly  inadequate  to  the 
benefit  or  detriment  involved  as  to  shock  the  conscience  of  a 
Court  of  Equity,  in  which  event  the  consideration  will  be  held 
invalid  and  the  contract  annulled.  A  agreed  to  loan  B  certain 
large  boilers  for  the  purpose  of  weighing  them,  B  promising  to 
return  them  to  A  in  the  same  condition  in  which  they  were 
received.  B  takes  the  boilers  apart  in  order  to  weigh  them  and 
returns  them  to  A  without  putting  them  together.  A  brought 
suit  against  B  for  breach  of  contract,  in  that  the  boilers  were 
not  returned  in  good  condition.  B  defended  on  the  ground  that 
there  was  no  consideration  for  his  promise  to  return  them  in 
proper  condition.     The  Court  held  that  B  must  have  received 


CONTRACTS  33 

some  benefit,  otherwise  he  would  not  have  taken  the  trouble  of 
weighing  the  boilers,  and  furthermore  that  it  was  a  detriment  to 
A  to  part  with  their  possession.  The  contract  was  decided  to 
be  a  valid  one  and  B  was  held  liable  for  its  breach.  It  should 
be  borne  in  mind  that  the  law  will  never  attempt  to  rescue  a  man 
simply  because  he  enters  into  a  bad  bargain.  An  illustration  of 
this  principle  is  furnished  in  the  case  of  a  man  purchasing  the 
patent  rights  of  another.  Supjxjse  A  agrees  for  a  particular  sum 
to  purchase  B's  entire  right,  title  and  interest  in  and  to  certain 
letters  patent,  which  turn  out  to  be  worthless  in  view  of  a  sub- 
sequently discovered  patent  of  a  prior  date.  A,  who  obtained 
precisely  what  he  bargained  for,  is  bound  by  his  contract, 
although  the  property  in  the  patent  was  valueless.  Hence  it  is 
always  well  to  consider  carefully  a  bargain  before  concluding  it. 
A  man  by  the  exercise  of  a  little  forethought  in  these  respects 
may  avoid  the  otherwise  disastrous  consequences  of  contracts  into 
which  he  may  enter. 

In  connection  with  the  subject  of  consideration  it  should 
also  be  noted  that  a  consideration  is  void  if  based  upon  a  promise 
to  do  an  act  impossible  of  performance. 

Promises. 

The  existing  liabilities  of  the  contracting  parties  must  also 
be  taken  into  consideration  in  determining  whether  or  not  a  bona 
fide  benefit  has  been  received  by  one  party  and  a  legal  detriment 
suffered  by  the  other.  Thus,  if  a  man  is  legally  liable  to  do  an  act, 
a  promise  of  its  performance  confers  no  legal  benefit  upon  the 
party  so  entitled.  For  example,  if  I  am  indebted  to  you  in  the 
sum  of  $5,000,  which  I  have  neglected  to  pay,  and  I  finally  come 
to  you  and  promise  to  pay  the  debt  in  full,  provided  you  will 
loan  me  your  yacht  for  the  summer,  which  you  agree  to  do, 
although  in  one  sense  of  the  word  the  prompt  payment  of  my 
indebtedness  is  a  consideration  to  you,  your  promise  to  loan  me 
your  yacht  cannot  be  enforced  on  the  ground  that  there  was  no 
consideration  recognized  by  law  to  support  it.  Inasmuch  as  I 
was  already  legally  liable  to  pay  you  the  amount  of  my  debt  in 
full,  you  could  receive  no  valid  consideration  upon  my  promise 
to  pay  the  same  if  you  would  loan  me  your  yacht. 

Upon  the  same  principle,  the  promise  to  perform  a  duty  im- 
posed by  law  constitutes  no  consideration  to  support  a  contract. 
If  you  are  subpoenaed  to  appear  in  Court  as  a  witness  in  a  case 
in  which  I  am  interested,  a  promise  made  by  me  to  pay  a  certain 


I 


34  CONTRACTS 

sum  of  money  to  you  if  you  will  attend  will  be  utterly  void,  be- 
cause in  attending  you  are  but  obeying  the  command  of  the 
subpoena  and  suffer  no  detriment  in  doing  what  you  are  legally 
bound  to  do.  Similarly  a  contract  not  to  do  that  which  a  man  is 
by  law  forbidden  to  do,  such  as  forging  the  signature  of  another, 
or  committing  an  assault,  is  void. 

Another  important  question  arises  in  connection  with  the 
subject  of  consideration.  It  frequently  happens  that  a  man  will 
promise  to  pay  a  part  of  his  debt  in  consideration  of  a  release 
of  the  whole.  Will  such  a  promise,  if  accepted,  be  binding?  It 
will  not  for  the  reason  that  a  promise  to  pay  a  part  of  a  debt,  for 
the  whole  of  which  you  are  liable,  constitutes  no  consideration. 
The  difficulty  is  avoided  by  a  promise  to  pay  something  different 
than  money  or  a  small  sum  of  money  and  certain  other  property 
of  value.  If  A  owes  B  $i,ooo  and  promises  to  pay  him  $500,  and 
also  gives  him  a  horse  worth  say  $150  in  settlement  of  the  full 
amount  of  the  bill,  this  promise  would  be  good.  The  distinction 
consists  in  the  fact  that  the  value  of  the  horse,  watch  fob  or 
other  chattel  given,  either  in  full  payment,  or  in  addition  to  the 
payment  of  a  less  sum  of  money  than  the  amount  due,  is  not 
readily  determinable,  and  may,  perchance,  be  of  more  value  to 
the  creditor  than  its  actual  market  value.  By  this  means  the  rule 
that  a  promise  to  pay  a  less  amount  than  is  due  is  no  considera- 
tion for  the  cancellation  of  the  balance  is  circumvented. 

Another  important  exception  to  the  rule  that  a  part  pay- 
ment is  no  consideration  for  the  release  of  the  entire  debt  exists 
in  the  case  of  an  assignment  for  the  benefit  of  creditors,  where  a 
number  of  creditors  agree  to  accept  a  certain  percentage  of  their 
entire  debt  in  satisfaction  of  their  claims.  Upon  what  principle, 
it  might  be  asked,  can  a  number  of  creditors  do  that  which  an 
individual  creditor  cannot  do?  Apparently  no  better  considera- 
tion exists  for  the  release  of  the  whole  upon  payment  of  part 
of  an  indebtedness,  if  owing  to  several,  than  if  owing  to  an  in- 
dividual creditor.  Nevertheless,  the  law  holds  that  there  is  a  suffi- 
cient consideration  contained  in  the  mutual  promises  of  the  sev- 
eral creditors  between  themselves,  whereby  they  obtain  that  which 
they  otherwise  would  not  receive. 

Suppose,  however,  that  a  dispute  arises  between  two  parties 
as  to  the  amount  of  the  debt.  For  example,  A  claims  that  B  owes 
him  $300,  whereas  B  admits  an  indebtedness  of  only  $200.  The 
matter  is  finally  compromised  by  B  agreeing  to  pay  A  $250  in  full 
satisfaction  of  the  debt,  which  is  accepted  by  A.  Subsequently  it 
is  discovered  that  the  exact  amount  of  the  debt  was  $300.    The 


CONTRACTS  35 

original  agreement  to  compromise  the  dispute  by  the  payment 
of  $250  would  in  this  case  be  binding,  on  the  ground  that  the  law 
favors  the  amicable  adjustment  of  controversies  and  recognizes 
a  valid  consideration  for  the  release  of  the  balance  of  a  debt 
where  the  same  is  disputed.  The  consideration  consists  in  the 
expense  and  vexation  saved  by  compromising  the  dispute  which 
would  be  imposed  upon  the  parties  in  case  litigation  was 
necessary. 

Consideration,  as  we  have  learned,  may  be  executed  or  ex- 
ecutory; if  the  benefit  accruing  to  one  of  the  contracting  parties 
consists  of  value  which  was  given  before  the  promise  was  made, 
there  is  no  consideration ;  in  other  words,  a  past  consideration 
subject  to  the  exceptions  hereinafter  noted  will  not  support  a 
contract.  To  illustrate:  If  I  should  perform  certain  services,  re- 
sulting in  some  benefit  to  you,  assuming  that  it  was  suddenly 
necessary  for  me  to  do  so  to  save  or  benefit  your  property  or 
other  interests,  and  you  should  subsequently  promise  to  pay  me 
a  certain  sum  to  compensate  me  for  my  labors,  I  would  not  be 
able  to  recover  upon  this  promise  because  it  was  made  after  the 
consideration  therefor,  the  performance  of  the  service,  was 
given.  A  better  illustration  is  perhaps  furnished  in  the  case  of  a 
warrantee  given  after  a  contract  is  closed.  A  purchases  a  gold 
watch  from  B  and  after  paying  for  and  receiving  the  same,  A 
returns  and  asks  B  if  it  is  warranted  for  a  year,  to  which  B  re- 
plies in  the  affirmative.  In  the  event  of  a  defect  in  the  watch 
within  a  year,  A  would  not  be  entitled  to  recover  upon  the  war- 
rantee because  it  was  made  after  the  contract  was  closed.  The 
consideration  for  the  warrantee  was  past,  which,  as  we  have 
observed,  will  not  support  a  contract,  and  it  is  therefore  void. 

It  should  be  borne  in  mind,  however,  that  a  consideration, 
though  past,  conferred  at  the  request  of  another,  will  support  a 
subsequent  promise.  Suppose  that  A  requests  B  to  perform  cer- 
tain services  for  him,  and  after  B  has  performed  such  services  A 
promises  to  pay  him  one  hundred  dollars.  Although  the  con- 
sideration in  this  illustration  was  past  at  the  time  the  promise 
was  made,  the  contract  would  nevertheless  be  binding.  This 
exception  to  the  general  rule  is  made  for  the  reason  that  it  is 
manifestly  unfair  to  excuse  a  man  from  a  promise  made  in  con- 
sideration of  a  past  benefit  conferred  at  his  own  particular 
request. 

A  promise  is  often  made  to  pay  a  debt  which  has  been  ren- 
dered unenforceable  by  virtue  of  the  statute  of  limitations.  It 
is  important  to  understand  clearly  the  effect  of  such  a  promise. 


S6  CONTRACTS 

Consider,  for  example,  that  seven  years  after  a  debt  has  fallen 
due,  I  come  to  you  requesting  its  payment.  The  Statute  of  Lim- 
itations in  most  States  debars  recovery  of  a  debt  after  the  expira- 
tion of  six  years  from  its  date.  However,  recognizing  a  moral 
obligation  to  pay  the  debt,  you  promise  to  do  so.  This  promise 
could  be  enforced  in  a  suit  at  law,  because  the  promise  merely 
revives  an  old  debt  and  consequently  no  new  consideration  is 
necessary,  the  old  consideration  reviving  with  the  old  debt.  The 
object  of  the  Statute  of  Limitations  is  to  prevent  the  prosecu- 
tion of  stale  claims,  but  if  a  promise  is  made  to  pay  a  debt  out- 
lawed by  the  Statute,  it  will  be  collectible  for  six  years  from  the 
date  of  the  promise. 

Considerable  doubt  has  been  expressed  as  to  whether  or  not 
a  moral  consideration  will  support  a  contract,  but  the  weight  of 
authority  is  to  the  effect  that  it  will  not.  Thus  a  guardian  who 
expends  his  own  money  to  improve  the  property  of  his  ward  is 
clearly  entitled  upon  every  moral  consideration  to  be  repaid  by 
the  ward  who  has  profited  through  his  guardian's  kindness. 
Nevertheless  a  promise  by  the  ward  upon  reaching  his  majority  to 
repay  the  guardian,  being  based  wholly  upon  a  moral  considera- 
tion, will  not  be  binding.  There  are  cases  in  Pennsylvania  holding 
that  the  existence  of  a  moral  duty  will  support  an  express  promise 
to  perform  the  duty. 

Contracts  in  Writing. 

In  the  above  discussion  we  have  found  out  that  every  simple 
contract  must  be  supported  by  a  consideration.  There  is  a  certain 
class  of  contracts  which,  in  addition  to  the  requirement  of  having 
a  proper  consideration,  must  be  expressed  in  writing.  The 
contracts  required  to  be  reduced  to  writing  before  any  right  of 
action  can  arise  therefrom  are  regulated  by  the  Statutes  of 
Frauds  and  Perjuries.  These  statutes  merely  require  that  the 
contract  expressed  in  writing  shall  set  forth  its  terms  with 
reasonable  definiteness,  the  principle  object,  as  indicated  by  the 
title  of  these  statutes,  being  to  prevent  frauds  and  perjuries. 

The  contracts  necessary  to  be  expressed  in  writing  by  the 
law  of  Pennsylvania  are  contracts  for  the  sale  of  real  estate,  con- 
tracts for  the  leasing  of  real  estate  for  any  term  exceeding  three 
years,  contracts  creating  a  trust  in  lands,  tenements  and  heredita- 
ments, contracts  of  executors  and  administrators  to  answer  for 
damages  out  of  their  own  estate,  and  contracts  to  answer  for 
the  debt  or  default  of  another.    Unless  such  contracts  or  mem- 


CONTRACTS  37 

oranda  thereof  are  reduced  to  writing  and  signed  by  the  party 
to  be  charged  therewith,  or  by  a  duly  authorized  agent,  they 
cannot  be  enforced.  Such  contracts  are  not  per  sc  void,  but  are 
merely  unenforceable  in  a  court  of  law  unless  fulfilling  the  re- 
quirements of  the  statutes. 

The  Statutes  of  Frauds  and  Perjuries  differ  somewhat  in 
the  different  States  and  interesting  questions  arise  where  con- 
tracts are  made  in  one  State  and  sought  to  be  enforced  in  another, 
in  which  States  the  Statutes  differ.  It  is  a  general  rule  of  law 
that  the  law  of  the  place  or  jurisdiction  within  which  a  contract 
is  made  governs  its  validity.  But  suppose  a  contract  is  made 
in  a  State  the  law  of  which  does  not  require  the  same  to  be  re- 
duced to  writing.  The  parties  subsequently  remove  to  Pennsyl- 
v^mia,  where  a  breach  of  the  contract  takes  place.  Can  there 
be  a  recovery  in  this  State  where  the  law  requires  written  evi- 
dence of  the  contract?  The  contract  is  valid  according  to  the 
law  of  the.  State  wherein  it  was  made,  but  as  the  Statutes  of 
Frauds  and  Perjuries  do  not  operate  to  render  any  contract  void, 
but  merely  regulate  the  manner  in  which  contracts  of  a  certain 
nature  must  be  proven,  recovery  could  not  be  had  in  Pennsyl- 
vania, in  the  absence  of  the  requisite  written  evidence  of  the 
contract  required  to  prove  it  according  to  the  law  of  this  State. 


Reality  of  Consent. 

We  have  now  considered  three  elements  which  must  neces- 
sarily enter  into  the  formation  of  every  valid  contract,  proper 
capacity  of  the  parties,  the  existence  of  a  definite  offer  and  ac- 
ceptance, and  the  presence  of  either  form  or  consideration.  The 
next  essential  element  to  engage  our  attention  is  that  of  Reality 
of  Consent.  The  agreement  entered  into  may  apparently  in- 
clude all  the  necessary  requisites  of  a  valid  contract,  nevertheless 
if  the  agreement  is  obtained  by  fraud  or  deceit,  or  if  there  is 
a  mutual  mistake  of  a  material  fact  regarding  the  subject  matter 
of  the  contract,  as,  for  instance,  if  the  subject  matter  of  the  con- 
tract was,  unknown  to  either  party,  not  in  existence  at  the  time 
the  agreement  was  made,  it  is  clear  that  no  valid  contract  can 
under  such  circumstances  exist. 

The  parties  may  have  made  a  mistake  regarding  a  material 
fact  connected  with  their  transaction,  as  above  noted.  Now, 
such  a  mistake  must  be  distinguished  from  a  mere  error  in  judg- 
ment, as  a  mistake  concerning  the  profits  to  be  derived  from  the 
contract.    Such  a  mistake,  being  altogether  one  of  judgment,  will 


38  CONTRACTS 

not  release  the  party  from  his  obligations.  A  mistake  to  nullify 
a  contract  must  be  a  mistake  in  a  material  fact.  If  I  agree  to  pur- 
chase from  you  a  certain  lot  of  goods,  which  it  subsequently  de- 
velops had  at  the  time  of  our  agreement  been  destroyed  by  fire, 
of  which  fact  we  were  both  ignorant,  no  contract  would  be  made, 
because  the  subject  matter  thereof  was  not  in  existence  at  the 
time  we  entered  into  the  agreement.  This  illustrates  such  a  mis- 
take of  fact  as  would  invalidate  a  contract. 

Again,  the  mistake  of  fact  may  be  made  regarding  the  iden- 
tity rather  than  the  existence  Si  the  subject  matter  of  the  con- 
tract. To  cite  an  old  illustration,  John  Doe  sold  Richard  Roe  a 
cargo  of  cotton  to  arrive  on  the  ship  Peerless,  from  Bombay.  As 
a  matter  of  fact  there  were  two  ships  bearing  the  same  name  sail- 
ing from  the  same  port.  In  making  the  agreement,  John  Doe  hati 
in  mind  one  of  these  ships,  while  Richard  Roe  thought  of  the 
other.  Under  these  circumstances  no  contract  was  made  because 
there  was  an  honest  mistake  of  fact  regarding  the  identity  of  the 
subject  matter. 

Not  only  will  a  mistake  as  to  the  identity  of  the  subject 
matter  invalidate  a  contract,  but  a  mistake  with  reference  to  the 
identity  of  the  contracting  parties  will  also  render  the  contract 
void.  Suppose  A  agrees  to  furnish  B  with  a  certain  amount  of 
tea  and  coffee  for  a  year.  Before  the  expiration  of  the  year,  A 
sells  out  his  business  to  C,  who  continues  to  furnish  B  with  the 
above  articles.  B  upon  finding  out  that  C  is  furnishing  him  with 
tea  and  coffee  instead  of  A  can  repudiate  any  liability  to  carry  out 
the  contract,  because,  not  having  entered  into  any  contract  with 
C,  and  having  entertained  the  idea  that  it  was  A  who  was  fur- 
nishing him  with  the  goods,  he  would  not  be  compelled  to  pay  C 
for  such  tea  and  coffee  as  might  have  been  delivered  to  him. 

It  sometimes  happens  that  a  man  mistakes  the  character  of  a 
contract  entered  into  by  him.  If  a  paper  is  signed  with  the  un- 
derstanding that  it  is  a  release,  when  in  reality  it  is  a  promissory 
note,  the  party  signing  such  a  document  would  not  be  bound 
thereby  because  a  mistake  existed  as  to  its  character.  If,  how- 
ever, a  question  arose  as  to  which  of  the  two  innocent  parties 
should  suffer  the  loss  due  to  such  a  mistake,  the  burden  would 
fall  on  the  party  executing  the  instrument  on  account  of  his  negli- 
gence in  not  reading  the  paper  carefully  and  informing  himself  of 
its  contents. 

Mistake  of  a  material  fact,  as  we  have  seen,  renders  a  con- 
tract void.  There  are,  however,  certain  other  forms  of  un- 
reality of  consent  which,  although  not  invalidating  a  contract, 


CONTRACTS  39 

nevertheless  furnish  one  of  the  parties  an  opportunity  to  avoid 
the  consequences  of  the  contract.  Such  unreality  of  consetit  may 
result  either  from  a  misrepresentation  or  a  fraud.  As  it  is  very 
important  to  have  a  clear  conception  of  the  distinction  between 
misrepresentation  and  fraud,  let  us  consider  carefully  what  con- 
stitutes each,  and  what  effect  the  presence  of  each  has  upon  a 
contract. 

In  its  legal  signification,  misrepresentation  does  not  neces- 
sarily imply  wilful  falsehood,  but  must  be  understood  to  be  the 
result  of  a  mis-statement  of  fact  innocently  made  by  one  of  the 
contracting  parties  to  the  other.  For  example,  if  I  sell  you  a  watch 
which  I  honestly  believe  to  be  eighteen  karat  gold,  but  which, 
as  a  matter  of  fact,  is  a  very  inferior  article,  I  am  guilty  of  a  mis- 
statement of  fact  innocently  made.  Such  a  misrepresentation 
would  give  the  right  to  the  injured  party  to  rescind  the  contract. 

It  is  sometimes  difficult  to  determine  whether  or  not  the  mis- 
representation forms  an  integral  part  of  the  contract  or  is  merely 
collateral  to  it.  In  the  former  instance  the  validity  would  and  in 
the  latter  instance  it  would  not  be  affected.  If  a  dealer  in  dia- 
monds sells  a  customer  a  diamond  which  he  honestly  believes 
to  be  a  stone  of  the  first  water,  but  which  in  reality  is  only  glass, 
the  misrepresentation  obviously  forms  part  of  the  contract,  i.  e., 
is  an  integral  part  thereof.  But  if  a  valuable  horse  is  sold  with 
the  representation  that  the  left  hind  foot  is  white,  whereas  it 
is  the  right  foot  that  is  white,  this  misrepresentation  would  not 
form  part  of  the  contract  and  hence  would  not  affect  its  validity. 

Representations  forming  part  of  the  contract  must,  more- 
over, be  distinguished  from  warranties  which  are  agreements 
collateral  to  the  contract.  If  an  article  is  sold  represented  to  be 
of  a  certain  quality  with  the  proviso  that  if  it  is  not  of  the  quality 
represented  the  contract  may  be  rescinded,  the  representation 
as  to  quality  is  an  essential  element  of  the  contract  and  not  a 
warrantee.  If,  on  the  other  hand,  an  article  is  sold  warranted  to 
be  of  a  certain  quality,  but  no  provision  is  made  providing  that 
in  case  it  is  not  the  contract  may  be  rescinded,  the  sale  cannot 
be  repudiated  even  though  the  article  be  very  much  inferior  in 
quality.  An  action  would,  of  course,  lie  to  recover  damages  for 
the  breach  of  the  warrantee  and  the  measure  of  damages  would 
be  the  difference  between  the  actual  value  of  the  article  and  the 
value  of  the  article  as  it  was  represented  to  be.  Misrepresenta- 
tion in  the  contract  gives  a  right  to  rescind ;  but  the  breach  of  a 
warrantee  gives  only  the  right  to  sue  for  damages.    As  warrantees 


40  CONTRACTS 

are  very  commonly  made  in  sales  of  merchandise,  the  above  im- 
portant distinction  should  be  very  carefully  observed. 

It  is  frequently  provided  in  a  contract  that  its  conditions 
must  be  performed  within  a  limited  time.  When  such  a  condition 
forms  part  of  the  contract,  i.  e.,  when  time  is  of  the  essence  of 
the  contract,  its  breach  confers  upon  the  injured  party  the  right 
to  rescind  it;  when  a  time  stipulation  is  collateral  to  the  con- 
tract, a  failure  to  perform  the  contract  within  the  time  limited 
merely  gives  rise  to  an  action  for  damages,  covering  the  loss 
incident  to  the  delay,  but  the  contract  is  nevertheless  enforceable. 

Time  is  not  of  the  essence  of  a  contract,  unless  made  so 
by  the  express  stipulation  of  the  parties  or  unless  it  is  to  be  implied 
from  the  nature  of  the  subject  matter  that  the  parties  so  con- 
templated it;  no  such  implication  will  ordinarily  be  made  as  to 
contracts  for  the  payment  of  money,  or  the  conveyance  of  land, 
or  in  any  case  where  the  damage  caused  by  a  breach  with  regard 
to  the  time  of  delivery  can  be  compensated  for  in  money. 

A  very  usual  form  of  misrepresentation  arises  as  a  result 
of  a  man's  over-anxiety  to  dispose  of  his  goods.  It  is  very  natural 
for  one  to  employ  commendatory  phrases  and  to  exaggerate 
the  value  of  his  wares,  but  a  mere  extravagant  description  is  not 
necessarily  a  misrepresentation  such  as  would  affect  the  contract. 
A  in  selling  a  hotel  to  B  stated  that  it  was  leased  at  the  time  by  a 
good  tenant.  As  a  matter  of  fact,  the  tenant  was  a  very  poor  one, 
not  having  paid  his  rent  for  a  considerable  time  past.  The  Court 
declared  that  a  "good  tenant"  meant  one  who  paid  his  rent 
promptly  and  regularly,  and  hence  the  representation  that- the 
tenant  in  possession  of  the  hotel  was  a  good  tenant  being  false, 
the  contract  was  annulled.  Ordinarily  a  man  is  presumed  to  deal 
with  another  at  arm's  length  and  should  not  rely  explicitly  upon 
representations.  The  doctrine  of  caveat  emptor,  "let  the  pur- 
chaser beware,"  implies  a  duty  on  the  purchaser  of  goods  or  mer- 
chandise of  any  kind  to  exercise  his  own  judgment  and  means  of 
information.  A  purchaser  deceived  in  the  value  or  quality  of 
goods  he  had  the  opportunity  of  inspecting  cannot  recover  in  the 
absence  of  false  statements  wilfully  made  by  the  vendor  of  said 
goods.  An  expression  of  opinion,  however  erroneous,  must  be 
distinguished  from  a  positive  statement  of  fact,  and  will  not  give 
rise  to  a  cause  of  action. 

We  have  seen  that  a  contract  may  be  set  aside  if  a  misrepre- 
sentation is  made  of  a  material  fact.  There  are  a  certain  class 
of  contracts  which  is  governed  by  a  failure  to  disclose  a  materia! 
fact.    In  this  connection  contracts  of  life  and  fire  insurance  are 


CONTRACTS  41 

illustrations.  It  is  well  known  that  a  failure  on  the  part  of  the 
insured  to  state  fully  all  facts  which,  if  known,  would  affect  the 
risk  taken  will  defeat  the  right  of  the  insured  to  recover. 

A  misrepresentation,  if  forming  part  of  the  contract,  gives 
the  right  to  the  injured  party  to  rescind;  if  the  misrepresentation 
is  collateral  to  the  contract,  we  have  seen  that  only  an  action  for 
damages  will  lie  on  behalf  of  the  injured  party. 

Suppose  the  misrepresentation  of  a  material  fact  instead  of 
being  innocently  made  was  made  with  the  express  purpose  of 
deceiving?  It  would  then  constitute  what  is  known  as  fraud. 
There  are  five  elements  necessary  to  render  a  statement  fraudu- 
lent in  the  eyes  of  the  law.  It  must  be  (i)  a  false  statement  (2) 
of  a  material  fact  (3)  made  with  a  knowledge  of  its  falsity 
or  with  a  reckless  disregard  of  its  truth;  (4)  it  must  be  acted 
upon  by  the  party  to  whom  it  is  made  (5)  who  must  suffer  loss 
thereby. 

The  representation  to  constitute  fraud  must  in  point  of  fact 
be  false,  and  it  must  be  a  statement  of  fact  as  distinguished  from 
an  expression  of  opinion  or  judgment.  The  false  statement  of  a 
material  fact  must,  to  be  fraudulent,  have  been  made  with  the 
intention  of  deceiving.  The  deception  practiced  may  not  have 
been  intended  to  injure  the  party  who  suffers  thereby,  but, 
nevertheless,  if  the  false  statement  was  intended  to  deceive,  liabil- 
ity rests  upon  the  party  making  it  to  whosoever  is  affected  thereby. 
I  sell  to  you  a  rifle  which  I  represent  as  thoroughly  safe  and 
made  by  a  reputable  house.  Both  of  these  statements  I  know  to 
be  false.  You  purchase  the  rifle  and  give  it  to  your  son,  who  is 
injured  in  using  it.  I  claim  in  a  suit  brought  to  recover  damages 
that,  inasmuch  as  I  did  not  make  the  false  statements  to  your  son, 
but  to  you,  I  am  not  liable  for  your  son's  injuries.  This  argu- 
ment would  not  prevail,  the  law  holding  that  I  am  liable  not  only 
to  you,  but  also  to  your  son  or  whosoever  was  injured  as  a  re- 
sult of  my  deception  or  fraud. 

The  most  difficult  question  to  determine  is  not  whether  the 
statement  of  a  material  fact  was  false,  but  whether  or  not  it 
was  known  to  be  false  by  the  party  making  it.  The  knowledge 
of  falsity  is  the  essence  of  fraud.  Sometimes,  however,  a  state- 
ment is  made  by  a  party  who  perhaps  does  not  know  it  to  be 
false,  but  who,  notwithstanding,  makes  the  statement  with  a 
reckless  disregard  of  its  truth.  Now,  it  is  quite  plain  that  a  man 
has  no  right  wilfully  to  assert  as  a  fact  that  of  which  he  is  in  en- 
tire ignorance.     Such  reckless  a.ssertions  should  render  the  party 


42  CONTRACTS 

making  them  responsible  in  both  morals  and  law  to  whosoever  is 
prejudiced  thereby. 

The  rules  above  stated  in  regard  to  the  truthfulness  of  repre- 
sentations should  be  particularly  observed  in  the  publication  of 
prospectuses  of  proposed  companies  or  corporations.  The  ut- 
most candor  and  honesty  should  characterize  every  statement 
contained  in  a  prospectus.  A  failure  on  the  part  of  a  promoter 
of  a  corporation  to  state  everything  with  accuracy  and  care  will 
vitiate  a  contract  with  one  whom  their  misrepresentations  have 
induced  to  invest  in  the  enterprise. 

No  fraud  exists  unless  the  false  representation  was  acted 
upon  by  the  other  party.  The  reliance  upon  the  fraud  must  also 
result  in  some  injury  or  prejudice  to  the  party  relying  thereon. 

Having  determined  what  constitutes  fraud,  let  us  next  inquire 
into  the  effect  of  fraud  upon  a  contract. 

The  existence  of  fraud  in  a  contract  does  not  necessarily 
render  the  same  void.  Fraud  will  render  an  executory  contract 
voidable  at  the  option  of  the  injured  party.  He  may  carry  out 
the  contract  and  sue  for  the  loss  sustained  as  a  result  of  the 
fraud,  or  he  may  repudiate  the  entire  contract  and  sue  for  dam- 
ages covering  his  losses.  It  is  necessary  for  the  injured  party 
promptly  to  notify  the  other  party  of  his  determination  after 
discovery  of  the  fraud,  otherwise  the  contract  will  be  deemed  to 
have  been  ratified.  If  he  decide  to  rescind  the  contract  he  may 
sue  to  recover  that  with  which  he  parted  under  the  contract. 
Proof  of  fraud  will  also  constitute  a  good  defense  to  either  an 
action  at  law  or  in  equity  for  specific  performance.  The  injured 
party  may  also  recover  what  is  known  as  punitive  damages,  which 
are  awarded  not  only  to  compensate  him  for  his  losses,  but  to 
punish  the  party  guilty  of  the  fraud. 

Duress  and  Undue  Influence. 

The  last  two  forms  of  unreality  of  consent  which  we  will 
consider  are  duress  and  undue  influence. 

In  order  to  compel  the  execution  of  a  contract,  violence, 
either  actual  or  threatened,  is  sometimes  offered  to  a  man  or  a 
member  of  his  immediate  family.  This  is  what  is  known  as 
duress,  and  in  such  a  case  the  consent  given  is  unreal,  the  will 
being  overpowered  by  fear  of  injury.  A  contract  so  entered 
into  may  be  avoided  at  the  option  of  the  injured  party.  Duress 
is  of  three  kinds:  (i)  Duress  of  imprisonment;  (2)  duress  per 
tninas,  where  personal  injuries  or  imprisonment  is  threatened  in 


CONTRACTS  43 

order  to  force  a  party  to  enter  into  a  contract;  and  (3)  duress  of 
goods,  being  a  case  where  one  has  in  his  possession  or  control 
goods  of  another  and  threatens  to  exercise  his  control  over  said 
goods  to  the  prejudice  of  the  other  party,  which  threat  is  made 
for  the  purpose  of  compelling  the  other  party  to  enter  into  a 
contract.  Any  agreement  made  under  such  a  threat  can  be 
avoided. 

Similarly  when  undue  influence  is  exercised  upon  a  man  to 
induce  him  to  execute  or  enter  into  a  contract,  he  may  be  forced 
to  do  that  which  his  better  judgpnent  disapproves.  Undue  in- 
fluence is  usually  exercised  upon  old  or  feeble-minded  people, 
upon  orphans,  minors  and  certain  other  classes  of  people  who 
occupy  a  confidential  relation  with  the  party  exercising  the  undue 
influence.  There  is  also  a  presumption  of  undue  influence  when 
one  takes  advantage  of  another's  necessities  and  distress,  as,  for 
example,  usurious  interest  charged  for  loans.  Undue  influence 
occurs  more  frequently  in  the  case  of  wills  than  in  contracts.  The 
presence  of  undue  influence  in  a  contract  will  invalidate  it. 

The  party  seeking  to  set  aside  a  contract  on  the  ground  of 
undue  influence  has  the  burden  of  proving  the  same.  In  certain 
cases,  however,  the  burden  of  rebutting  the  presumption  of  un- 
due influence  rests  upon  the  party  benefiting  by  the  contract,  in 
view  of  the  relationship  existing  between  the  parties.  If  a  son 
sold  his  father  a  very  valuable  piece  of  ground  for  an  inadequate 
consideration,  the  burden  would  be  on  the  father  to  prove  that 
he  did  not  exercise  undue  influence  upon  his  son.  All  parties 
standing  in  locus  parentis  or  in  a  fiduciary  capacity  must  prove 
that  no  undue  influence  was  exerted  to  obtain  any  advantage 
from  those  to  whom  they  stand  in  such  relationship. 

Legality  of  Object. 

We  have  now  brought  two  parties  with  legal  capacity  to 
enter  into  a  contract  together ;  an  expression  of  their  intention 
has  been  made  in  the  proper  manner  by  a  definite  offer  and  ac- 
ceptance ;  said  offer  and  acceptance  may  involve  a  valid  considera- 
tion or  may  be  set  forth  in  writing  under  seal ;  furthermore  the 
consent  of  the  parties  may  be  real,  i.  e.,  free  from  mistake,  mis- 
representation, fraud,  duress  or  undue  influence;  nevertheless 
the  contract,  although  involving  all  of  the  above  essential  ele- 
ments, will  be  void  if  the  objects  sought  by  the  contract  to  be 
accomplished  are  illegal.  Such  illegality  will  arise  if  the  object 
contemplated  by  the  contract  is  forbidden  by  statute,  if  it  is 


44  CONTRACTS 

contrary  to  the  common  law,  or  if  it  is  opposed  to  general  public 
policy. 

An  act  of  Congress  or  of  a  State  Legislature  may  provide 
that  a  certain  class  of  contracts  are  void,  or  perhaps  such  statute 
may  merely  provide  that  a  penalty  be  imposed  upon  all  persons 
who  enter  into  a  contract  of  a  certain  character.  In  the  latter 
instance  the  contract  is  not  void,  but  if  the  statute  specially  de- 
clares that  the  objects  of  certain  contracts  were  illegal,  the  con- 
tract would  be  absolutely  void  and  no  rights  would  be  acquired 
thereunder. 

A  very  common  class  of  contracts  declared  by  statute  to  be 
void  are  wagering  contracts.  By  Act  of  Assembly  money  lost  on 
a  horse  race  or  other  game  of  hazard  or  upon  an  election  result 
cannot  be  recovered.  The  statutes  of  Pennsylvania  also  prohibit 
the  performance  of  worldly  business  on  Sunday.  Any  contract 
made  on  the  Sabbath  Day,  if  it  remains  executory,  is  void.  The 
exceptions  to  this  rule  are  contracts  of  necessity  and  contracts  of 
charity. 

The  law  of  this  State  also  makes  it  unlawful  for  a  man  to 
act  as  a  real  estate  or  merchandise  broker  without  having  first 
obtained  a  Hcense.  The  cashier  of  a  State  bank  is  prohibited  by 
law  from  engaging  in  any  other  business. 

If  a  contract  having  a  specified  object  is  forbidden  by  law, 
any  contract  collateral  thereto  is  likewise  invalid.  If  a  promissory 
note  is  given  in  settlement  of  a  bet,  this  note  is  itself  invalid 
because  wagering  contracts  are  forbidden  and  the  consideration 
thereof  is  illegal. 

If  the  object  of  a  contract  is  contrary  to  any  rule  of  common 
law  it  is  invalid.  Thus  contracts  to  commit  a  civil  wrong  or  a 
crime  are  absolutely  void. 

Any  contract  whose  object  contravenes  any  rule  of  public 
policy  is  also  void.  Any  act  the  performance  of  which  is  deemed 
to  be  detrimental  to  the  general  public  welfare  is  opposed  to  gen- 
eral public  policy  and,  therefore,  void.  To  illustrate,  any  con- 
tract whose  object  it  is  to  defeat  justice,  to  promote  litigation, 
to  restrain  marriage  or  trade  are  void  because  opposed  to  public 
policy. 

The  policy  of  the  law  has  always  been  to  encourage  mar- 
riage, and  consequently  any  contract  in  restraint  thereof  will  not 
be  recognized. 

It  is  also  the  policy  of  the  law  to  promote  trade,  and  conse- 
quently any  agreement  which  unreasonably  restrains  a  person 
from  exercising  his  trade  or  business  is  void.    A  common  example 


CONTRACTS  45 

of  such  an  agreement  is  where  a  business  man  disposes  of  his 
business  to  a  competitor,  and  in  consideration  of  the  price  paid 
for  doing  so  agrees  not  to  engage  in  the  same  business  again.  Ob- 
viously this  agreement  is  in  restraint  of  trade  and,  therefore, 
void.  The  Courts  will,  however,  sustain  a  contract  not  to  engage 
in  a  particular  trade  or  business  within  a  specified  territory  for 
a  limited  period  of  time,  partial  restraints  being  unobjectionable. 
Total  restraint  of  trade,  or  what  practically  amounts  to  the  same 
thing,  cannot  be  enforced  in  a  Court  of  law. 

It  should  also  be  noted  in  this  regard  that  the  law  forbids 
the  formation  of  monopolies  and  trusts  whose  purpose  it  is 
to  control  or  enhance  the  price  of  necessary  commodities  by  pre- 
venting competition  in  the  sale  thereof,  or  by  withholding  them 
from  the  market.  Such  an  object  is  opposed  to  public  policy, 
in  that  it  is  in  restraint  of  trade,  and  any  contract  or  agreement 
embodying  such  an  object  is  invalid. 

It  sometimes  happens  that  the  illegal  character  of  the  con- 
tract is  not  apparent,  one  of  the  parties  being  entirely  ignorant 
thereof.  For  example,  I  may  enter  into  an  agreement  with  you 
to  lease  a  house  which  I  intend  to  convert  into  a  speak-easy.  If 
you  are  innocent  of  my  intention  you  could  hold  me  to  my  con- 
tract, providing  there  was  nothing  to  indicate  the  illegality  of  the 
contract  on  its  face.  If,  however,  you  were  aware  of  my  illegal 
object  the  contract  would  be  void,  being  tainted  by  an  illegal 
object. 

The  effect  of  illegality  upon  contracts  varies  according  to 
circumstances.  The  general  rule  is  that  where  part  only  of  a 
contract  is  illegal,  the  part  which  is  legal  can  be  enforced  if  it  can 
be  separated  from  the  illegal  part.  If,  however,  the  contract  is 
indivisible  it  is  void  in  toto. 


Operation  of  Contract. 

Having  pointed  out  the  manner  in  which  a  valid  contract 
may  be  created,  the  next  inquiry  to  engage  our  attention  is  upon 
whom  does  such  a  contract  confer  rights  and  liabilities,  and  can 
such  rights  and  liabilities  be  assigned  or  pass  to  others  than  the 
original  parties  to  the  contract? 

The  party  to  a  contract  who  gives  the  consideration  should 
enjoy  the  benefit,  and  the  party  who  makes  a  promise  should 
be  obliged  to  keep  it.  It  may  be  stated  as  a  general  rule  that 
a  contract  cannot  impose  an  obligation  or  confer  a  right  upon  any 
person  not  a  party  to  the  same.    Thus  if  A  should  contract  with 


46  CONTRACTS 

B  to  pay  C  a  certain  sum  of  money,  this  contract  would  not  con- 
fer any  rights  upon  C.  There  are,  however,  certain  well- 
recognized  exceptions  to  the  rule  above  stated.  If  a  contract 
between  two  parties  establishes  a  trust  for  the  benefit  of  a  third 
party,  said  third  party  can  bring  suit  against  the  promisor  and 
have  the  contract  carried  out. 

Suppose  A  and  B  are  partners  in  business.  B  retires  from 
the  firm  and  turns  the  assets  over  to  A,  who  promises  to  assume 
all  liabilities  of  the  firm.  Upon  this  promise  made  by  A  to  B,  X, 
a  creditor  of  the  firm,  could  sue  in  his  own  name  and  recover 
a  debt  owing  by  the  firm  to  him.  The  decisions  are  not,  however, 
entirely  uniform  in  this  regard. 

When  a  contract  has  been  made  between  two  or  more  par- 
ties, there  is  a  duty  imposed  upon  outside  parties  not  to  inter- 
fere with  the  contractual  relation  so  established.  This  rule  ap- 
plies more  particularly  to  contracts  of  employment,  a  man  being 
liable  in  damages  who  maliciously  induces  the  employee  of 
another  to  break  his  contract  of  employment. 

Under  certain  circumstances,  however,  third  parties  may 
take  the  place  of  the  original  parties  to  the  contract,  such  substi- 
tution being  effected  by  an  assignment.  An  assignment  of  a  con- 
tract may  be  accomplished  in  two  ways  ( i )  by  act  of  the  parties 
and  (2)  by  operation  of  law. 

A  man  cannot  assign  his  liabilities  to  a  contract,  his  power 
of  assignment  being  limited  to  his  rights  thereunder. 

Contractual  rights  may  be  assigned  under  three  conditions, 
(i)  the  assignee  must  give  a  consideration;  (2)  the  person  liable 
for  the  debt  or  the  performance  of  any  act  under  a  contract  must 
be  notified  of  the  assignment;  and  (3)  the  assignee  in  acquiring 
rights  under  the  contract  takes  subject  to  such  defenses  as  may 
exist  against  the  assignor. 

The  assignment  may  be  either  verbal  or  written,  the  form 
being  immaterial,  except  in  cases  coming  under  the  pro- 
visions of  the  Statutes  of  Frauds.  Notice  of  the  assignment  may 
be  given  in  any  manner,  it  merely  being  required  that  knowledge 
of  the  assignment  be  brought  to  the  attention  of  the  party  liable 
under  the  contract. 

Where  an  assignment  takes  place  by  operation  of  law,  both 
rights  and  liabilities  arising  out  of  a  contract  may  be  transferred. 
To  illustrate  this  principle,  consider  a  contract  between  A  and  B 
whereby  A  is  to  construct  a  building  for  B.  When  the  work 
is  half  completed  B  dies.  Will  A  be  compelled  to  carry  out  his 
contract  by  completing  the  building?    The  rights  of  B  pass  by 


CONTRACTS  47 

operation  of  law  either  to  his  executors  or  administrators,  and  A 
could  be  compelled  by  B's  representatives  to  perform  his  con- 
tract. Rights  under  a  contract  are  personal  property  and  pass 
by  operation  of  law  to  a  man's  personal  representatives.  Likewise 
the  liabilities  on  contracts  into  which  a  decedent  may  have  en- 
tered are  imposed  upon  his  executors  or  administrators  by  oper- 
ation of  law. 

In  the  case  of  bankruptcy,  all  rights  under  any  contracts  in 
which  the  bankrupt  was  a  party,  pass  by  law  to  the  trustee  ih 
bankruptcy,  the  bankrupt  having  surrendered  his  property  into 
Court  to  be  distributed  among  his  creditors,  and  by  so  doing  is 
subsequently  discharged  from  all  liabilities  therefor. 

There  are,  moreover,  certain  contracts  for  the  sale  of  real 
estate,  which  contracts  by  operation  of  law  become  binding  upon 
parties  not  involved  in  the  original  contracts.  Such  is  the  case 
with  contracts  containing  covenants  which  are  said  to  "run  with 
the  land."  This  class  of  contracts  will  be  considered  more  in  de- 
tail in  the  lectures  on  real  estate. 

It  should  be  carefully  noted  that  all  contracts  calling  for  a 
personal  relation  between  the  parties  cannot  be  assigned.  This 
applies  more  particularly  to  contracts  for  personal  services,  in 
which  confidence,  trust  or  a  high  degree  of  skill  is  required. 
A  man  has  a  right  to  the  benefit  he  contemplates  from  the  char- 
acter, credit  and  substance  of  the  person  with  whom  he  contracts, 
and  hence  such  contracts  cannot  be  assigned. 

Any  contract,  the  breach  of  which  invokes  only  personal  in- 
juries, not  affecting  the  value  of  property,  is  unassignable,  either 
by  the  act  of  the  parties  or  operation  of  law,  as  for  example  a 
contract  of  marriage. 

The  assignability  of  negotiable  instruments  forms  an  excep- 
tion to  the  above-enumerated  rules,  and  will  be  considered  later 
in  the  course. 

Interpretation. 

Having  ascertained  the  manner  in  which  a  contract  may  be 
created  and  the  parties  that  may  be  aflfected  thereby,  we  will  now 
consider  the  rules  governing  the  interpretation  of  contracts.  The 
object  of  the  law  in  construing  a  contract  is  to  determine  the  in- 
tention of  the  parties.  Let  us  assume  that  the  terms  of  the  con- 
tract have  been  clearly  proven,  but  that  a  dispute  has  arisen 
regarding  the  meaning  of  the  terms  used.  Upon  what  basis  will 
the  law  proceed  to  interpret  the  contract? 

In  the  first  place,  the  object  aimed  at  in  interpreting  a  con- 


48  CONTRACTS 

tract  is  to  arri  /e  at  the  intention  of  the  parties  by  a  consideration 
of  the  whole  agreement.  Every  part  of  a  contract  should  harmon- 
ize with  every  other  part,  but  where  one  clause  is  repugnant  to 
another  the  prior  clause  will  be  accepted  and  the  latter  clause 
rejected.  Similarly  where  part  of  a  contract  is  in  writing  and 
part  printed,  the  terms  of  which  are  inconsistent,  the  written 
part  will  prevail  in  preference  to  the  printed  part. 

The  words  contained  in  an  agreement  will  always  be  given 
their  plain  and  literal  meaning.  A  man  will  not  be  heard  to 
deny  that  he  meant  what  his  words  clearly  imply.  If  words  used 
by  a  party  in  a  contract  have  a  legal  significance  of  which  he  is 
ignorant  this  is  a  misfortune,  but  affords  no  excuse  for  constru- 
ing words  in  any  other  sense  than  what  is  plain,  literal  and  ob- 
vious. The  meaning  of  words  must  be  that  which  is  understood 
by  the  mass  of  mankind.  If  technical  words  are  employed  they 
will  be  given  the  meaning  ascribed  to  them  in  the  trade,  art,  busi- 
ness or  profession  to  which  they  appertain.  A  contract  made  in 
a  locality  wherein  a  particular  usage  or  custom  prevails  will  be 
governed  thereby. 

In  analyzing  the  intention  of  the  parties  to  a  contract,  all 
the  circumstances  leading  up  to  its  formation  will  also  be  con- 
sidered. Thus  the  subject  matter  of  the  contract,  the  considera- 
tion therefor,  the  object  sought  to  be  affected  thereby  and  all  the 
surrounding  circumstances  will  be  inquired  into  in  order  to  find 
out  what  the  intention  of  the  parties  really  was. 

Words  are  always  construed  most  strongly  against  the  party 
using  them;  that  is  when  opportunity  is  given  for  latitude  of 
construction,  words  will  be  construed  most  strictly  against  the 
party  employing  them.  For  example,  in  an  insurance  policy, 
words  are  construed  most  strongly  against  the  insurance  com- 
pany ;  in  a  deed  against  the  grantor,  etc. 

In  view  of  the  fallibility  of  human  nature,  it  is  always  the 
part  of  prudence  to  reduce  contracts  of  any  importance  to  writ- 
ing and  be  sure  to  embody  every  essential  detail  into  the  written 
contract.  Trust  nothing  to  memory.  These  recommendations 
should  be  carefully  observed  in  view  of  the  fact  that  it  is  a  well- 
established  rule  of  evidence  that  no  oral  evidence  will  be  received 
to  vary  or  contradict  the  terms  of  a  written  contract.  When  a 
person  has  taken  the  precaution  to  reduce  a  contract  to  writing, 
it  is  presumed  he  has  carefully  considered  the  entire  agreement, 
and  consequently  he  will  not  be  allowed  to  abrogate  the  effect  of 
a  written  contract  by  setting  forth  an  oral  agreement  incon- 
sistent with  the  terms  of  the  written  agreement. 


CONTRACTS  49 

The  above  stated  rule,  although  a  most  salutary  one  in  many 
regards,  would,  under  certain  circumstances,  operate  harshly. 
Hence  certain  exceptions  have  been  made  which  it  will  now  be  our 
purpose  to  briefly  outline. 

Assume  that  a  contract  has  been  made,  properly  reduced 
to  writing  and  executed,  but  which  was  obtained  through  duress, 
or  was  the  result  of  fraud  or  misrepresentation.  It  would  surely 
be  a  hardship  to  prevent  oral  evidence  to  establish  the  invalidity 
of  such  a  contract.  Hence  oral  evidence  may  always  be  produced 
to  prove  the  illegality  of  a  written  agreement. 

Although  the  terms  of  a  written  contract  cannot  be  con- 
tradicted by  oral  evidence,  it  is  permissible  to  offer  oral  testi- 
mony to  determine  the  meaning  of  peculiar  or  technical  terms 
contained  in  the  contract.  This  is  frequently  necessary  in 
admiralty  cases  to  construe  nautical  words  and  phrases,  which 
may  be  done  through  the  introduction  of  oral  evidence. 

After  executing  a  written  contract  the  parties  may  subse- 
quently desire  to  alter  or  modify  the  same.  If  the  original  con- 
tract was  obliged  to  be  under  seal  or  written  by  virtue  of  the 
Statutes  of  Frauds  and  Perjuries,  the  alteration  must  also  be 
under  seal  or  written.  But  if  a  contract  has  been  reduced  to 
writing  in  the  absence  of  any  legal  necessity,  oral  evidence  will  be 
received  to  prove  any  subsequent  oral  agreement  altering  or  mod- 
ifying the  terms  of  the  original  written  agreement.  It  would, 
as  a  matter  of  protection,  be  well  to  always  include  in  a  written 
contract  the  manner  in  which  it  may  be  subsequently  changed,  if 
so  desired. 

In  connection  with  the  rules  applicable  to  the  interpretation 
of  contracts,  the  importance  of  the  distinction  between  a  penalty 
and  liquidated  damages  cannot  be  overestimated.  The  observance 
of  this  distinction  further  indicates  the  object  of  the  Court  to 
definitely  ascertain  the  intention  of  the  parties. 

It  is  usual,  especially  in  building  contracts,  to  provide  for 
the  payment  of  a  fixed  sum  of  money  by  the  party  guilty  of  a 
breach  of  the  contract.  The  question  that  presents  itself  is 
whether  such  a  sum  was  intended  as  a  penalty  or  liquidated  dam- 
ages. Suppose  A  agrees  to  construct  a  power  house  for  the  B 
company,  the  work  to  be  completed  by  July  i,  191 1.  The  con- 
tract provides  that  A  shall  pay  to  the  B  company  the  .sum  of  two 
hundred  and  fifty  dollars  per  day  for  every  day  the  operation 
remains  uncompleted  after  July  i,  191 1.  Now,  the  important 
fact  to  determine  is  whether  the  two  hundred  and  fifty  dollars 
is  to  be  regarded  as  a  penalty  for  A's  failure  to  finish  the  work 


50  CONTRACTS 

within  the  stipulated  time,  or  whether  said  sum  of  two  hundred 
and  fifty  dollars  is  to  represent  the  damages  sustained  by  B  on 
account  of  the  delay.  If  the  amount  is  construed  to  be  a  penalty, 
the  Court  would  not  permit  B  to  recover  the  same,  B  only  being 
able  to  recover  his  actual  loss.  If  however,  the  two  hundred  and 
fifty  dollars  is  to  be  regarded  as  liquidated  damages,  B  could 
recover  the  entire  amount  regardless  of  the  extent  of  his  actual 
losses.  It  is  immaterial  whether  the  parties  refer  to  the  amount 
to  be  paid  in  case  of  default  in  performance  of  the  contract  as  a 
penalty  or  liquidated  damages,  the  Court  will  consider  the  entire 
agreement  and  determine  whether  such  sum  is  to  be  treated  as  a 
penalty  or  liquidated  damages.  The  parties  by  saying  so  can- 
not convert  what  in  reality  is  a  penalty  into  liquidated  damages. 

To  arrive  at  the  proper  conclusion,  the  following  rule  has 
been  adopted :  If  the  amount  of  money  stipulated  to  be  paid 
upon  a  breach  of  the  contract  is  to  compensate  for  a  loss  which 
is  uncertain  in  amount  and  impossible  of  definite  ascertainment  at 
the  time  the  contract  is  made,  the  sum  to  be  paid  in  default  of  per- 
formance of  the  contract  is  to  be  regarded  as  liquidated  dam- 
ages. If  the  amount  stipulated  to  be  paid  is  understood  to  be 
compensation  for  a  loss  that  can  be  definitely  ascertained  in  ad- 
vance, and  the  amount  recoverable  exceeds  the  actual  loss,  then 
such  sum  is  to  be  regarded  as  a  penalty.  Care  should  be  exercised 
in  the  wording  of  a  contract  to  make  certain  the  amount  recover- 
able in  the  event  of  a  breach  is  liquidated  damages,  it  being  re- 
membered that  the  law  is  opposed  to  the  enforcement  of  a  penalty. 

Discharge  of  Contract. 

Having  indicated  how  a  contract  may  be  formed,  the  parties 
whom  it  affects,  and  the  rules  regulating  the  interpretation 
thereof,  the  last  question  to  be  considered  is:  How  may  the 
contractual  relation  be  discharged? 

Inasmuch  as  two  or  more  individuals  may  by  agreement  as- 
sume certain  obligations,  they  may  also  by  agreement  release 
themselves  from  such  obligations. 

An  agreement  discharging  a  contract  may  be  in  the  nature  of 
a  waiver ;  it  may  be  by  the  substitution  of  a  new  contract  for  the 
old  one;  or  there  may  be  an  express  provision  in  the  contract 
itself  providing  for  its  discharge. 

A  waiver  is  an  express  agreement  that  the  contract  shall 
not  be  longer  obligatory  upon  either  party.  As  in  the  case  of  any 
other  agreement,  a  waiver  requires  a  consideration.     Where  a 


CONTRACTS  51 

contract  remains  exectitory,  that  is,  where  neither  party  has  per- 
formed his  part,  it  may  be  waived  by  mutual  consent.  In  such  a 
case  the  abandonment  by  each  party  of  his  right  to  a  performance 
by  the  other  is  a  sufficient  consideration  for  the  contract  of 
waiver.  An  executed  contract  cannot  be  discharged  in  the  ab- 
sence of  consideration  except  by  a  release  under  seal. 

A  sealed  contract  or  a  written  contract  may  be  discharged 
by  an  oral  contract,  providing  there  is  a  consideration  therefor. 
Although  it  is  not  necessary  for  a  contract  to  be  discharged  in 
the  same  form  as  that  in  which  it  was  made,  yet  prudence  would 
dictate  that  such  a  practice  be  adopted. 

Discharge  by  Substituted  Contract. 

A  new  contract  may  be  substituted  for  an  old  contract  cither 
wholly  or  partly  different  therefrom.  The  substituted  contract 
may  result  either  from  an  express  agreement  abrogating  the  old 
contract  in  whole  or  in  part,  or  it  may  result  by  implication, 
where  the  terms  of  the  new  agreement  are  inconsistent  with  the 
old  contract. 

A  contract  may,  furthermore,  be  discharged  by  the  substi- 
tution of  a  new  party  for  one  of  the  parties  to  the  original  agree- 
ment. This  substitution  of  a  new  party  is  what  is  known  as  a  no- 
vation. If  A  and  B  are  the  contracting  parties,  and  ag^ee  that  C 
shall  take  the  place  of  B,  this  operates  as  a  novation,  and  B  is 
released  or  discharged  from  all  further  liability  on  account  of  his 
original  contract  with  A,  C  assuming  the  same.  This  principle  is 
frequently  illustrated  in  the  case  of  a  retiring  partner  from  a 
firm.  If  a  creditor  is  notified  of  the  retirement  of  a  partner 
from  a  company,  and  either  expressly  agrees  to  release  him  or 
continues  dealing  with  the  firm  upon  the  old  basis,  the  retiring 
partner  is  discharged  from  liability,  the  creditor  looking  to  the 
continuing  partners  for  the  performance  of  all  contracts  and  the 
meeting  of  any  indebtedness. 

It  sometimes  happens  that  a  contract  is  discharged  by  the 
happening  of  certain  conditions.  For  example,  if  a  contract  of 
service  provides  that  either  party  may  terminate  it  by  one 
month's  notice  to  the  other,  an  exercise  of  this  option  by  either 
party  will,  of  course,  discharge  the  contract. 

When  both  parties  have  done  all  they  are  required  to  do  un- 
der the  contract  the  contract  is  discharged  by  performance.  A  per- 
formance must  be  in  accordance  with  the  terms  and  conditions 
of  the  contract,  but  the  law  will  not  hold  a  man  to  the  strictest 


52  CONTRACTS 

performance,  but  is  satisfied  by  a  substantial  performance.  A 
performance  is  substantial  which  conforms  with  the  ascertained 
intention  of  the  parties  to  the  contract.  Thus  a  provision  that  a 
builder  shall  use  "the  best  French  plate  double-thick  glass,  simi- 
lar to  that  used  in  a  certain  other  building,"  only  requires  the 
builder  to  use  a  fair  sample  of  the  quality  of  glass  specified,  and 
not  that  each  plate  should  be  the  best  specimen  of  its  kind. 

One  of  the  parties  to  the  contract  may  be  perfectly  willing 
to  carry  out  his  agreement,  and  may  make  a  tender  of  perform- 
ance to  the  other  party  which  is  not  accepted.  If  I  tender  you 
$500  which  I  owe  you  under  a  contract,  and  you  refuse  to  ac- 
cept the  same,  I  am  not  excused  from  paying  you  the  amount  I 
owe,  but  upon  proof  that  I  have  made  you  a  tender  I  am  relieved 
from  the  obligation  of  paying  the  costs  of  a  suit,  interest  on  the 
debt  or  damages  for  non-performance.  To  be  valid  a  tender 
must  be  of  the  entire  amount  due  and  must  be  unconditional. 

If  instead  of  a  party  making  payment  of  money,  suppose  a 
promissory  note  is  given  for  the  amount  due;  the  discharge  is 
only  conditional  upon  the  note  being  paid  at  maturity.  If  the 
note  goes  to  protest,  the  original  contract  revives  and  can  be  sued 
upon  and  the  note  disregarded. 

Discharge  by  Breach. 

If  one  of  the  "parties  to  a  contract  fails  to  perform  that 
which  he  is  bound  to  perform  thereunder,  such  default  consti- 
tutes a  breach  of  the  contract  on  his  part.  Such  a  breach  does 
not  necessarily  discharge  a  contract,  although  under  certain  cir- 
cumstances hereafter  to  be  considered  it  may.  It  will,  however, 
always  give  to  the  other  party  a  right  to  recover  damages  for 
such  injuries  as  he  may  have  sustained  by  virtue  of  the  breach. 

In  the  event  of  a  breach,  the  question  arises  whether  or  not 
it  affects  an  integral  part  or  term  of  the  contract  or  whether  it 
merely  relates  to  a  collateral  agreement  or  warrantee.  The  dis- 
tinction between  a  representation  which  is  an  integral  part  of 
the  contract  and  one  that  is  collateral  thereto  has  been  emphasized 
heretofore.  In  the  former  case,  failure  to  perform  the  agree- 
ment will  discharge  the  contract  so  as  to  absolve  the  other  party 
from  all  liability  on  his  part.  In  the  latter  case,  such  a  failure 
may  give  rise  to  an  action  for  damages,  but  will  not  discharge  the 
contract.  Similarly  the  breach  of  an  integral  part  of  a  con- 
tract, aflfecting  the  substance  thereof,  will  discharge  the  same; 
a  breach  of  a  collateral  part  of  the  contract  will  only  give  rise  to 
an  action  for  damages. 


CONTRACTS  53 

A  breach  of  a  contract  may  affect  either  the  whole  or  only  a 
part  of  it.  In  contracts  comprising  a  number  of  separate  agree- 
ments it  is  necessary  to  ascertain  whether  a  breach  of  one  of  the 
agreements  will  destroy  the  entire  contract  or  only  that  part  which 
it  directly  affects. 

Suppose  A  and  B  enter  into  a  contract  whereby  A  agrees  to 
furnish  B  600  tons  of  coal,  200  tons  to  be  delivered  in  the  months 
of  April,  May  and  June,  respectively.  The  April  shipment  is 
short  some  120  tons.  B  immediately  considers  the  default  as  a 
breach  of  the  contract.  It  cannot  be  denied  that  A  was  guilty 
of  a  breach  of  the  contract,  but  the  contract  was  clearly  a  divis- 
ible one,  and  if  A  fulfilled  his  contract  by  making  delivery  of 
the  required  number  of  tons  in  May  and  June,  B  could  only  re- 
cover damages  resultant  upon  the  default  in  the  April  shipment. 
The  question  to  be  determined  in  such  cases  is  "What  is  the 
substance  of  the  contract  ?"  The  mere  fact  that  deliveries  are  to 
be  made  at  different  times  is  not  of  itself  sufficient  to  conclude 
that  failure  of  delivery  in  one  instance  discharges  the  contract. 
it  simply  gives  a  remedy  in  the  nature  of  an  action  for  dam- 
ages. We  must  endeavor  to  find  out  the  real  intention  of  the  par- 
ties, and  if  the  parties  intended  that  a  series  of  separate  agree- 
ments should  constitute  a  single  contract,  then  a  breach  of  one 
will  destroy  the  whole,  otherwise  the  rule  will  be  as  in  the  illus- 
tration given  above.  In  connection  with  divisible  contracts  the  de- 
cisions are  very  close  and  the  circumstances  of  each  case  must 
be  carefully  considered. 

A  breach  of  a  contract  may  occur  by  an  express  renunciation 
by  one  of  the  parties  thereto.  If  I  agree  to  furnish  you  with  a 
certain  number  of  railway  chairs  and  after  delivering  part  you 
decline  to  accept  any  more,  by  renouncing  your  part  of  the  con- 
tract you  are  guilty  of  a  breach.  It  is  not  necessary  for  me  to 
complete  the  manufacture  of  the  balance  of  the  order  and  ten- 
der delivery  to  you,  but  I  may  immediately  sue  you  for  damages 
on  account  of  your  renunciation.  The  contract  is  regarded  as  st 
an  end,  and  my  right  of  action  exists  whether  the  renunciation 
was  made  before  or  after  the  time  when  the  contract  was  to  have 
been  performed. 

The  promisee  has  an  inchoate  right  to  a  performance  of  the 
contract  which  becomes  complete  when  the  time  for  performance 
arrives,  and  in  the  meantime  has  a  right  to  have  the  contract 
kept  open  as  a  subsisting  and  effective  agreement,  and  the  prom- 
isee can  in  all  cases  treat  a  renunciation  before  the  time  of  per- 
formance arrives  as  a  breach  of  the  contract.     Two  principles 


54  CONTRACTS 

must  be  borne  in  mind  in  applying  this  rule:  The  repudiation 
of  the  contract  must  be  absolute  and  the  other  party  thereto 
must  elect  to  consider  it  as  a  discharge  of  the  entire  obligation. 
A  contracts  to  furnish  B  with  certain  steel  rails  on  November  i  st, 
a  further  amount  on  December  15th  and  the  balance  on  January 
1st.  He  ships  the  amount  due  on  November  ist,  but  on  Decem- 
ber loth  writes  B  that  he  will  not  be  able  to  make  delivery  of 
the  amount  that  was  due  on  December  15th.  On  December  25th 
B  writes  to  A  that  he  is  willing  to  accept  the  amount  that  was 
due  on  December  15th.  In  a  suit  brought  by  A  against  B 
to  recover  the  price  of  the  rails  which  were  shipped  on  November 
1st,  B  endeavored  to  set  off  damages  for  breach  on  A's  part  in 
not  making  the  delivery  on  December  15th.  The  Court  refused 
to  allow  this  set-off  on  the  ground  that  B  acquiesced  in  the  re- 
nunciation, as  was  evidenced  by  his  communication  to  A  under 
date  of  December  25th. 

Breach  Arising  from  Impossibility  of  Performance. 

A  contract  may  be  discharged  not  only  by  a  formal  refusal  by 
one  of  the  parties  to  carry  out  his  part,  but  also  if  one  of  the 
parties  renders  the  performance  of  the  contract  impossible  by 
his  own  act.  This  will  operate  as  a  complete  breach  if  done  either 
before  or  after  the  time  for  performance  arrives.  To  illustrate 
this  principle,  suppose  A,  an  insurance  agent,  contracts  to  repre- 
sent the  B  Insurance  Company  for  the  period  of  three  years. 
The  company,  however,  voluntarily  winds  up  its  business  at  the 
end  of  one  year.  A  would  be  entitled  to  bring  suit  at  the  end  of 
one  year  and  recover  his  salary  for  the  full  period  of  three  years. 

In  the  earlier  discussion  of  this  subject,  it  was  pointed  out 
that  if  there  were  any  conditions  which  rendered  performance  of 
the  contract  impossible,  existing  at  the  time  the  contract  was 
made,  as  in  the  event  of  the  subject  matter  being  destroyed  by  fire, 
which  fact  was  unknown  to  the  parties,  the  contract  would  be 
void,  or  rather  there  never  would  have  been  a  valid  contract.  We 
will  now  consider  how  a  contract  may  be  discharged  by  impossi- 
bility of  performance  arising  after  the  contract  is  made.  If 
it  has  become  impossible  for  a  man  to  perform  his  contract,  the 
Courts  cannot,  of  course,  compel  specific  performance,  but  the  de- 
faulting party  will,  nevertheless,  be  liable  in  damages.  To  pro- 
tect himself  a  man  in  making  a  contract,  should  always  intro- 
duce such  stipulations  as  will  relieve  him  of  liability  upon  the 
happening  of  conditions  which  would  render  the  contract  impos- 


CONTRACTS  55 

sible  of  performance.  Thus  if  I  should  contract  to  deliver  to  you 
a  cargo  of  goods  by  a  certain  date,  but  am  prevented  from  doing 
so  on  account  of  a  violent  storm,  or  the  happening  of  other  condi- 
tions beyond  my  control,  I  would  not  be  able  on  such  account  to 
avoid  responsibility,  no  matter  how  manifestly  beyond  my  power 
were  the  conditions  preventing  the  performance.  Had  I  specified 
in  the  contract  "Storms  excepted,"  I  would  have  been  relieved 
from  liability.  A  man  should  always  stipulate  in  a  contract  that 
he  will  not  be  liable  in  case  of  acts  of  God,  strikes  or  circum- 
stances beyond  his  control. 

Under  certain  circumstances,  subsequent  impossibility  of  per- 
formance will  discharge  liability  under  the  contract  in  the  ab- 
sence of  express  exception.  If,  for  example,  subsequent  to  the 
date  of  a  contract,  the  laws  of  the  locality  wherein  it  was  made 
change,  making  it  illegal  to  perform  the  same,  liability  thereunder 
would  be  discharged  on  the  ground  of  impossibility  of 
performance. 

Furthermore,  in  contracts  for  personal  services,  death  or  in- 
capacitating illness  operates  as  a  complete  discharge. 

By  Operation  of  Law. 

Contracts  may  also  be  discharged  by  operation  of  law.  When 
a  man  becomes  a  bankrupt,  under  the  Federal  statutes  relating 
thereto,  upon  complying  with  the  requirements  of  the  law,  he  is 
thereupon  discharged  from  all  liability  on  account  of  all  former 
contracts  to  which  he  may  have  been  a  party.  His  debts  and 
obligations  are  discharged  by  operation  of  law. 

Merger. 

If  a  contract  is  made  under  seal,  covering  in  general  the 
terms  and  conditions  of  an  oral  contract  previously  made,  the 
simple  contract  is  discharged,  it  being  merged  into  the  sealed  con- 
tract. A  contract  of  less  solemnity  is  always  merged  into  one  of 
greater  solemnity,  where  the  same  involves  the  same  parties  and 
subject  matter. 

If  one  party  intentionally  alters  a  material  part  of  a  writ- 
ten contract  without  the  knowledge  or  consent  of  the  other 
party,  the  party  prejudiced  on  this  account  is  discharged  from 
all  liability  under  the  contract. 

Remedies  upon  a  Breach  of  Contract. 

When  a  breach  of  contract  has  occurred  in  any  of  the  ways 
heretofore  mentioned,  the  injured  party  is  given  certain  rights. 


56  CONTRACTS 

In  a  Court  of  law  he  may  recover  damages  to  compensate  him  for 
such  losses  as  resulted  to  him  on  account  of  the  breach.  It  is 
obvious,  however,  that  imder  certain  circumstances  such  damages 
as  might  be  recovered  in  a  Court  of  law  would  be  wholly  in- 
adequate to  the  injury  suffered.  A  Court  of  Equity  will,  when 
the  remedy  at  law  is  incomplete,  compel  a  specific  performance  of 
the  contract  and  grant  such  further  redress  as  complete  justice 
requires.  Specific  performance  is  decreed  by  a  Court  of  Equity 
most  frequently  in  the  case  of  contracts  for  the  sale  of  real  estate, 
upon  breach  of  which  damages  ordinarily  would  be  insufficient. 
Contracts  covering  building  operations,  the  construction  of  rail- 
roads, etc.,  will  not  be  specifically  enforced,  because  to  do  so 
would  necessitate  the  exercise  of  supervisory  powers  which  a 
Court  of  Equity  will  not  assume. 

We  see,  therefore,  that  when  a  breach  of  a  contract  occurs  a 
right  of  action  arises,  either  for  damages  or  specific  performance. 
How,  we  next  ask,  can  this  right  of  action  be  discharged  ? 

The  liability  which  has  arisen  from  the  breach  of  contract 
may  be  discharged  in  three  ways:  (i)  By  agreement  of  the 
parties;  (2)  by  judgment  of  a  Court  of  competent  jurisdiction, 
and  (3)  by  lapse  of  time. 

Any  party  injured  by  the  breach  of  a  contract  may  release 
the  party  guilty  of  the  breach  from  such  rights  of  action  as  he 
may  have  against  him.  Such  a  discharge  may  be  effected  by  a 
release  or  by  an  accord  and  satisfaction. 

A  release  from  liability  for  damages  is  ordinarily  made 
under  seal,  otherwise  it  would  be  a  promise  without  a  considera- 
tion. If  the  release  is  not  under  seal,  a  consideration  must  be  pres- 
ent to  support  it.  No  particular  form  is  necessary  for  a  release. 
A  covenant  not  to  sue  for  an  indefinite  time  has  been  held  to  be  a 
good  release.  A  release  of  one  of  several  joint  debtors  is  a  release 
of  all,  for  the  reason  that  where  one  has  been  released,  the 
remaining  debtor  or  debtors  cannot  be  jointly  liable,  and  it  was 
only  a  joint  liability  that  they  assumed. 

By  agreement  of  the  parties,  a  right  of  action  accruing  to  one 
may  be  discharged  by  what  is  known  as  an  accord  and  satis- 
faction. To  be  a  valid  release  the  benefit  or  consideration  to  be 
received  must  be  of  legal  value,  to  the  right  of  which  the  creditor 
was  not  before  entitled  and  m^ust  be  executed.  An  agreement  to 
take  property  in  payment  of  a  debt  and  the  acceptance  thereof  by 
the  creditor  pursuant  to  such  agreement  is  such  accord  and  satis- 
faction as  constitutes  a  good  defense  to  an  action  on  the  debt.  To 
effect  a  valid  accord  and  satisfaction  there  must  not  only  be  a 


CONTRACTS  57 

clear  agreement  or  accord,  but  the  agreement  must  be  executed 
by  acceptance  of  the  matter  agreed  upon  in  satisfaction. 

If  a  creditor  consents  to  accept  merchandise  in  satisfaction 
of  his  claim,  and  the  debtor  has  the  goods  ready  at  the  time  and 
place  agreed  upon,  this  is  a  sufficient  defense  to  a  subsequent 
action  for  the  debt.  Any  new  interest  or  right  acquired  by  the 
creditor  by  virtue  of  an  agreement  of  accord  and  satisfaction 
is  sufficient  to  discharge  the  right  of  action  if  received  in  sat- 
isfaction. 

Discharge  by  Judgment. 

A  second  manner  in  which  a  right  of  action  arising  out  of 
a  breach  of  contract  may  be  discharged  is  by  a  judgment.  When 
suit  is  brought  and  a  judgment  recovered,  unless  reversed  by  an 
Appellate  Court,  the  right  of  action  becomes  merged  in  the 
judgment  and  is  discharged  thereby. 

Discharge  by  Lapse  of  Time. 

Lastly,  a  right  of  action  may  be  lost  by  lapse  of  time. 

In  every  State  laws  exist,  slightly  varying,  known  as  the 
Statutes  of  Limitation,  which  limit  the  time  within  which  suit 
must  be  brought.  All  rights  of  action  arising  out  of  contracts 
must  be  sued  upon  within  six  years  after  the  right  accrues,  other- 
wise the  right  is  lost.  If  it  is  impossible  to  bring  suit  within 
the  required  period  of  time,  by  virtue  of  some  disability  apper- 
taining to  the  party  in  whose  favor  the  right  of  action  exists, 
such  as  infa'ncy,  temporary  insanity,  imprisonment,  absence 
beyond  the  seas  and  coverture  in  certain  cases,  the  statute  does 
not  commence  to  run  until  the  removal  of  such  disabilities.  In 
the  case  of  a  minor  it  would  not  begin  to  run  until  he  had 
attained  his  majority ;  in  the  case  of  an  insane  person,  the  statute 
would  run  from  the  time  he  recovered  his  reason;  in  the  case 
of  a  person  absent  abroad,  it  would  run  from  the  time  the  party 
returned. 

Summary  as  to  Contracts. 

In  summary,  a  contract  is  an  agreement  made  between  two 
or  more  persons,^  which  to  be  valid  and  enforceable  must  com- 
prise a  definite  offer  made  by  one  party  and  accepted  by  the 
other,  for  which  a  consideration  must  be  given,  or  which  must 
be  expressed  in  such  a  form  as  to  imply  consideration,  such  as 
an  agreement  under  seal. 


58  CONTRACTS 

Furthermore,  the  parties  must  have  legal  capacity  to  enter 
into  a  contract,  and  the  agreement  between  them  must  be  free 
from  fraud,  accident  or  mistake,  or  duress  or  undue  influence. 

If  the  contract  contemplates  an  object  which  is  illegal,  in  that 
it  is  contrary  to  statute  law,  the  common  law  or  public  policy, 
the  same  is  void. 

If  a  contract  embodies  the  above  requirements  it  operates 
to  bind  the  parties  thereto  to  the  terms  and  conditions  thereof. 
Rights  thereunder  may  under  certain  circumstances  be  assigned 
to  third  parties,  either  by  act  of  the  parties  or  by  operation  of 
law.  As  a  general  rule,  liabilities  under  a  contract  cannot  be 
assigned. 

A  contract  is  interpreted  according  to  the  plain  and  obvious 
meaning  of  its  terms;  when  technical  words  are  employed  they 
are  interpreted  according  to  their  meaning  in  the  art  or  science 
to  which  they  appertain.  In  interpreting  a  contract  evidence  will 
be  received  to  establish  a  particular  custom  or  usage  existing  in 
the  locality  within  which  the  contract  was  made. 

A  contract  when  made  may  be  discharged  by  performance 
of  its  conditions  by  both  parties,  by  waiver  of  such  performance, 
by  breach  of  its  terms,  by  merger  and  by  operation  of  law. 

When  a  contract  is  discharged  by  breach  the  injured  party 
may  either  sue  for  the  damages  suffered  by  virtue  thereof,  or 
may  compel  the  defaulting  party  to  specifically  perform  his  con- 
tract by  the  decree  of  a  Court  of  Equity. 

The  party  liable  for  the  breach  of  a  contract  may  be 
relieved  from  such  liability  by  agreement  of  the  parties,  by  judg- 
ment of  a  Court  of  law,  or  by  lapse  of  time,  i.  e.,  the  operation  of 
the  Statutes  of  Limitations. 

It  is  hoped  that  those  who  have  followed  the  course  thus 
far  have  clearly  grasped  the  principles  involved  in  the  Law  of 
Contracts,  as  outlined,  which  will  enable  the  reader  to  more 
profitably  study  the  following  subjects  to  be  considered,  the  first 
of  which  will  be  partnership. 


PARTNERSHIP    AGREEMENT   BETWEEN    TWO   ACT- 
ING AND  ONE  DORMANT  PARTNERS 

lnl\tnt\ltZ,  Made  the  day  of  ,  A.  D.  19 

hetiveen  and  ,  heretofore  partners  under  the 

style  of  ,  parties  of  the  first  part;  arid  of  , 

party  of  the  second  part. 

1.  (m|)ftffl0.  the  said  parties  of  the  first  part  have  heretofore 
carried  on  the  business  of  as  partners  under  and  by 
virtue  of  articles  of  partnership,  dated  the  day  of 

19 

2.  jSlnD,  tD^(Cfa0.  the  said  parties  of  the  first  part  are 
desirous  of  increasing  the  capital  of  their  said  business,  for  the  pur- 
pose of  more  effectually  carrying  on  the  same,  and  have  agreed  to  admit 
the  said  party  of  the  second  part  into  partnership  with  them,  itjwn 
the  terms  and  conditions  hereinafter  contained,  upon  his  advancing 
the  sum  of  dollars,  to  be  added  to  the  said  partnership  estate  and 
effects: 

3.  /^Oto  t^ifi  (nUenture  toUtUddet^,  that  in  pursuance  of 
the  said  recited  agreement,  ami  in  consideration  of  the  sum  of 
dollars,  to  be  advanced  and  brought  in  by  the  said  party  of  the  second 
part  to  the  account  of  the  said  partnership,  at  or  before  the  exeaUion 
hereof,  each  of  them,  the  said  partners,  do,  and  each  of  them  doth  hereby 
for  himself,  his  heirs,  executors,  ami  administrators,  covenant  and  agree 
with  the  others  of  them,  his  executors  and  administrators,  in  manner 
following:  that  they  will  be  partners  in  the  said  business  of 

for  the  term  of  years,  commencing  from  the 

day  of  ,  subject  to  the  stipulations  and  agreements  hereinafter 

contained: 

4-  That  the  capital  of  the  said  partnership  shall  be  the  sum 
of  dollars,  to  be  brought  in  by  the  said  partners  in  the 

following  proportions,  namely:  the  said  parties  of  the  first  part  shall 
bring  in  the  sum  of  dollars,  the  original  capital  of  the  said 

partnership,  under  the  said  hereinbefore  recited  indenture  of  the 

day  of  ,  and  beimj  one-third  of  the  said  partnership 

capital;  and  the  said  party  of  the  second  part  sfiall  bring  in  the  sum 
of  dollars  so  agreed  to  be  advanced  by  him  as  aforesaid, 

being  two-thirds  of  the  said  partnership  capital,  which  said  last 
mentioned  sum  of  dollars  shall  be  paid  by  the  said  party  of 

the  second  part  into  the  Bank  to  the  credit  of  the  said 

partnership,  on  or  before  the  day  of  next; 

and  the  said  partners  shall  be  considered  as  creditors  with  respect 
to  such  capital,  and  shall  be  allowed  interest  thereon  at  the  rate  of 
per  cent,  per  annum; 

5.  That  the  business  of  the  said  partnership  shall  be  carried 
on  at  the  present  store,  warehouse,  and  premises,  or  at  such  other  place 
or  places  as  the  said  partners  shall  from  time  to  time  agree  upon, 


under  the  same  style  and  firm,  and  in  the  same  manner  in  all  respects 
{except  so  far  as  the  same  is  altered  hereby),  as  the  said  partnership 
business  has  been  hitherto  carried  on  by  the  said  parties  of  the  first 
part; 

6.  That  the  said  partnership  business  shall  be  managed  and 
carried  on,  and  all  purchases,  sales,  bills  of  parcels,  orders,  notes, 
letters,  bills,  receipts,  payments,  contracts,  securities,  dealings, 
and  transactions  which  shall  be  made,  given,  or  taken  for  any  matter 
or  thing  concerning  the  same,  shall  from  time  to  time  be  so  made,  given, 
taken,  and  entered  into  in  the  name  of  the  said  parties  of  the  first  part; 

7.  That  all  goods,  wares,  and  merchandise  bought  and  sold, 
received  in  or  delivered  out,  and  the  prices  for  which  the  same  were 
bought  and  sold,  and  all  moneys,  payments,  securities,  and  dealings 
in  general  relating  to  the  said  partnership  business,  shall  be  daily 
charged  and  entered  by  the  said  parties  of  the  first  part  in  proper 
books  for  that  purpose,  and  in  particular  that  a  book  shall  be  kept 
for  the  entry  of  the  account  of  cash  received  and  paid  on  the  said 
partnership  account; 

8.  That  the  said  parties  of  the  first  part  shall,  during  the  con- 
tinuance of  the  said  partnership,  be  the  keepers  of  the  cash,  bonds, 
bills,  notes,  and  other  securities  belonging  to  the  said  partnership, 
and  shall  balance  the  said  partnership  accounts  once  in  every  month 
in  such  manner  as  to  exhibit  the  true  state  and  condition  of  the 
affairs  of  the  concern;  and  that  the  said  cash-book,  and  all  books 
of  account,  bonds,  bills,  notes,  letters,  vouchers,  and  securities,  shall 
be  kept  in  the  counting-house  belonging  to  the  said  business,  or  other 
the  place  where  the  said  partnership  business  shall  be  carried  on,  and 
be  open  at  all  times  during  the  regular  hours  of  business  to  the  inspec- 
tion of  all  the  said  partners,  who  shall,  without  hindrance  or  denial, 
be  permitted  to  take  copies  or  extracts  therefrom. 

9.  That  if  at  any  time  during  the  continuance  of  the  said  part- 
nership any  cash,  or  bills,  or  other  securities  shall  be  received  by  the 
said  party  of  the  second  part  on  the  partnership  account,  he  will 
immediately  pay  over  the  same  to  the  said  parties  of  the  first  part; 
and  in  case  of  making  default  in  such  payment  as  aforesaid  for  the 
space  of  days,  then,  and  in  every  such  case,  a  sum 
equal  to  dollars  per  cent,  on  the  sum  so  detained  or 
withheld  shall  be  charged  against  the  said  party  of  the  second  part 
by  way  of  liquidated  damages  and  not  by  way  of  permlty,  and  shall  be 
retained  out  of  his  share  of  the  profits  of  the  said  business,  and  added 
to  the  capital  of  the  said  partnership  for  the  general  benefit  of  the  whole 
concern; 

10.  That  the  parties  of  the  first  part  will,  at  all  times  during 
the  continuance  of  the  said  partnership,  devote  the  whole  of  their  time 
and  skill,  and  to  the  best  of  their  abilities  carry  on  all  the  affairs  of 
the  said  partnership,  and  shall  not  nor  will,  at  any  time  during  the 
continuance  of  such  partnership,  either  directly  or  indirectly,  be 
concerned  in  any  other  trade,  business,  or  profession  whatsoever. 

11.  That  the  said  party  of  the  second  part  shall  not  be  required 


to  bestow  any  attention,  or  to  act  in  any  way  in  the  said  business 
any  further  than  he  shall  think  fit;  nor  shall  he,  during  the  contin- 
uance of  the  said  jmrtnership,  or  at  any  other  time,  be  prevented  from 
carrying  on  any  other  business  or  trade,  excepting  that  of  , 

or  any  other  profession  or  employment  irhatsoever,  either  on  his  ovm 
account  or  in  partnership  with  any  other  person  or  persons; 

12.  That  the  profits  of  the  said  joint  partnership  concern, 
after  deducting  all  such  expenses  as  aforesaid,  shall  be  divided  into 

equal  portions,  and  thai  the  said  parties  of  the 
first  part  shall  each  receive  parts  of  the  said  profits;  the 

said  party  of  the  second  part  shall  receive  the  remaining 
parts;  and  all  losses  incurred  in  the  course  of  the  said  business  shall 
be  borne  in  the  same  proportions,  unless  the  same  shall  be  caused 
by  the  unlful  neglect  or  defaidt  of  cither  of  the  said  partners,  in  which 
case  the  loss  so  incurred  shall  be  made  good  by  the  partner  through 
whose  default  it  shall  arise; 

(Insert  any  appropriate  general  clauses,  such  as  requirement 
to  pay  private  debts,  prohibiting  becoming  surety,  etc.) 

13.  That  all  moneys  advanced  by  either  of  the  said  partners 
on  the  joint  partnership  account,  with  the  approbation  of  the  others 
of  them,  and  all  sums  of  money  which  either  of  them,  with  such 
approbation  as  aforesaid,  shall  permit  to  remain  in  the  said  business, 
which,  by  the  rules  herein  prescribed,  he  may  be  at  liberty  to  draw 
out  as  part  of  his  ascertained  profits  thereof,  shall  be  passed  to  his 
credit  in  the  partnership  account,  and  be  entered  in  the  books  of  the 
said  partnership,  and  bear  interest  at  the  rate  of 

per  cent,  per  annum  for  so  long  a  time  as  the  same  shall  be  so  per- 
mitted to  remain  therein,  and  shall  be  considered  as  a  distinct  loan, 
as  if  the  same  had  been  borrowed  from  any  other  person,  and  be 
accounted  for  and  paid  to  him  before  any  division  shall  be  made  of 
the  profits  of  the  said  partnership; 

14'  That  the  said  party  of  the  second  part  shall,  from  time  to 
time,  be  allowed  to  draw  out  of  the  said  partnership  business  weekly, 
and  for  his  private  expenses,  any  sum  qr  sums  of  money  not  exceed- 
ing the  sum  of  dollars;  and  that  the  said  parties  of  the 
first  part  shall  in  like  manner  be  resjyedively  allowed  from  time  to 
time  to  draw  out  of  the  said  partnership  business  weekly,  for  their 
own  private  expenses,  any  sum  or  sums  of  money  not  exceeding  the 
sum  of  dollars  each;  all  such  sum  and  sums  of  money, 
from  the  time  of  draunng  out  the  same,  to  be  entered  in  the  cash-book 
belonging  to  the  said  partnership,  and  to  be  duly  accounted  for  by 
the  said  parties  respectively  on  every  settlement  of  account,  and 
division  of  the  profits  of  the  said  partnership; 

(Insert  general  clauses  for  stating  annual  account,  and  for 
general  account  on  dissolution.) 

15.  That  if  either  of  the  said  partners  shall  be  desirous  of  deter- 
mining the  said  partnership  at  any  time  before  the  expiration  of  the 
said  term  of  years,  he  shall  be  at  liberty  so  to  do,  on  giving 

calendar  months'  previous  notice  in  writing  of  such 


his  desire  to  the  others,  or  either  of  them,  or  leaving  the  same  at  the 
counting-house  of  the  said  partnership,  and  such  partnership  shall 
determine    at    the    expiration    of    such  calendar 

months,  or  at  such  future  day  as  in  such  notice  shall  be  named,  and 
the  continuing  partners  shall  have  the  privilege  of  taking  the  whole 
of  the  partnership  business,  at  the  rate  at  which  the  same  shall  be 
appraised  and  valued,  on  paying  his  or  their  shares  of  such  valuation 
to  the  retiring  partner; 

16.  That  in  case  of  the  death  of  either  of  the  said  partners  before 
the  expiration  of  the  said  term  of  partnership,  the  surviving  partners 
will  settle  and  adjust  «^^  accounts,  matters,  and  things  relating  to  the 
said  partnership,  with  the  executors  or  administrators  of  such  deceased 
partner;  but  the  surviving  partners  shall  have  the  option  of  taking 
the  whole  of  the  said  partnership  property  at  a  valuation,  the  amourit 
of  which  shall  be  determined  by  the  award  of  two  arbitrators,  or  their 
umpire,  in  the  usual  manner,  and  the  costs  of  making  such  valuation 
shall  be  paid  by  the  surviving  partners  and  the  executors  or  adminis- 
trators of  the  deceased  partner,  according  to  their  respective  propor- 
tions in  the  said  partnership  business. 

In  toitne00,  etc. 


PARTNERSHIP   AGREEMENT 

article  Of  agreement.  Made  the  dty 

of  one  thousand  nine  hundred  and 

Bettoffn 


as  follows:    The  said  parties  above  named  have  agreed  to  become 
copartners  in  business,  and  by  these  presents  do 

agree  to  be  copartners  together,  under  and  by  the  name  or  firrri  of 


in  the 

to  the  said  business  belonging,  and  to  occupy  the 


their  copartnership  to  commence  on  the  day  of 

and  to  continue 


and  to  thai  end  and  purpose  the  said 


to  be  used  and  employed  in  common  between  them,  for  the  support 
and  management  of  the  said  business  to  their  mutual  benefit  and 
advantage.  SiXiti  it  is  agreed  by  and  between  the  parties  to  these 
presents,  that  at  all  times  during  the  continuance  of  their  copartner- 
ship, they  and  each  of  them  will  give  their  attendance,  and  do  their 
and  each  of  their  best  endeavors,  and  to  the  utmost  of  their  skill  and 
power  exert  themselves  of  their  joint  interest,  profit,  benefit  and 
advantage,  and  truly  employ,  buy,  sell,  and  merchandise  with  their 
joint  stock,  and  the  increase  thereof,  in  the  business  aforesaid. 
SLnh  ftl0O,  that  they  shall  and  will  at  all  times  during  the  said 
copartnership,  bear,  pay  and  discharge  equally  between  them,  all 
rents  and  other  expenses  that  may  be  required,  for  the  support  and 


management  of  the  said  business;  and  that  all  gains,  profit,  and 
increase,  that  shall  come,  grow,  or  arise  from  or  by  means  of  their 
said  business,  shall  be  divided  between  them 

and  all  loss  that  shall  happen  to  their  said  joint  business  by  ill 
commodities,  bad  debt^  or  otherwise,  shall  be  borne  and  paid  between 
them. 

SiVlti  it  is  agreed,  by  and  between  the  said  parties,  that  there  shall 
be  had  and  kept  at  all  times  during  the  continuance  of  their  copartner- 
ship, perfect,  just  and  true  books  of  account,  wherein  each  the  said 
copartners  shall  enter  and  set  down,  as  well  all  money  by  them  or 
either  of  them  received,  paid,  laid  out  and  expended  in  and  about 
the  said  business,  as  also  all  goods,  wares,  commodities  and  merchan- 
dise, by  them  or  either  of  them,  bought  or  sold,  by  reason  or  on  account 
of  the  said  business,  and  all  other  matters  and  things  whatsoever,  to 
the  said  business  and  the  management  thereof  in  anywise  belonging; 
which  said  books  shall  be  used  in  common  between  the  said  copartners, 
so  that  either  of  them  may  have  access  thereto,  without  any  interruption 
or  hindrance  of  the  other.     j3.nO  Sd0O,  the  said  copartners,  once  in 


or  oftener  if  necessary,  shall  make,  yield  and  render,  each  to  the 
other,  a  true,  just  and  perfect  inventory  and  account  of  all  profits 
and  iruyrease  by  them,  or  either  of  them  made,  and  of  all  losses  by 
them,  or  either  of  them,  sustained;  and  also  all  payments,  receipts, 
disbursements,  and  all  other  things  by  them  made,  received,  disbursed, 
acted,  done,  or  suffered  in  this  said  copartnership,  and  business; 
and  the  same  account  so  made,  shall  and  will  clear,  adjust,  pay  and 
deliver,  each  to  the  other,  at  the  time,  their  just  share  of  the  profits 
so  made  as  aforesaid. 

SiXt\i  the  said  parties  hereby  mutu/dly  covenant  and  agree, 
to  and  with  each  other,  that  during  the  continuance  of  the  said 
copartnership,  neither  of  them  shall  nor  will  endorse  any  note,  or 
otherwise  become  surety  for  any  person  or  persons  whomsoever, 
without  the  consent  of  the  other  of  the  said  copartners.  And  at  the 
end  of  the  time  hereinbefore  mentioned,  or  other  sooner  determination 
of  their  copartnership,  the  said  copartners,  each  to  the  other,  shall 
and  will  make  a  true,  just  and  final  account  of  all  things  relatirig 
to  their  said  business,  and  in  all  things  truly  adjust  the  same;  and 
all  and  every  the  stock  and  stocks,  as  well  a,s  the  gains  and  increase 
thereof,  which  shall  appear  to  be  remaining,  either  in  money,  goods 
wares,  fixtures,  debts  or  otherwise,  shall  be  divided  between  them. 


PARTNERSHIPS 

Definition — General  Nature — Powers  of  Partners — Rights  and 
Remedies  of  Creditors — Duties  and  Liabilities  of  Partners 
inter  esse — Dissolution — Accounting  and  Distribution — Lim- 
ited Partnership — Special  Partners — Partnership  Association 
— Hozv  Dissolved. 

THE  general  tendency  toward  the  concentration  of  capital 
characteristic  of  *the  present  age  renders  the  subject  of 
partnership  associations  of  widespread  interest  to  the  gen- 
eral business  public  and  the  law  applicable  to  their  regulation 
becomes  a  matter  of  considerable  importance  to  those  engaged 
in  either  mercantile  or  professional  pursuits. 

When  two  or  more  parties  agree  to  form  a  partnership, 
they  incur  certain  responsibilities,  both  individually  and  collec- 
tively. It  consequently  becomes  essential  to  investigate  the  status 
of  a  partnership  in  order  to  definitely  ascertain  when  such  a 
relationship  may  be  said  to  exist,  which  is  a  matter  of  no  in- 
considerable difficulty.  For  example,  an  agreement  between  two 
or  more  to  share  the  profits  of  a  certain  enterprise  does  not 
necessarily  constitute  a  partnership.  If  John  Doe  lends  Richard 
Roe  a  certain  sum  of  money  with  which  to  engage  in  business, 
in  consideration  of  which  Richard  Roe  agrees  to  allow  John  Doe 
sixty  per  cent,  of  the  net  profits  of  said  business,  he  does  not 
thereby  become  a  partner.  A  trader,  by  undertaking  to  pay  a 
creditor  a  certain  share  in  the  net  profits  of  his  business,  does 
not  make  such  creditor  a  partner,  nor  does  an  assignee  of  a 
debtor's  share  in  a  firm  become  a  partner  therein  although  en- 
titled to  a  share  in  the  net  profits.  Therefore,  the  fact  that  two 
parties  agree  to  share  in  the  profits  of  a  joint  enterprise  is  not 
conclusive  evidence  of  the   existence  of  a   partnership. 

What  then,  is  the  true  test  by  which  we  may  determine 
whether  or  not  a  partnership  exists?  A  partnership  is  created 
by  the  agreement,  either  expressed  or  implied,  between  two  or 
more  parties  to  carry  on  a  business  in  common  with  a  view  to 
profit.  Parties  may,  however,  subject  themselves  to  the  liabil- 
ities of  partners  in  the  absence  of  any  intention  to  become  such, 
but  if  they  hold  themselves  forth  to  the  public  as  partners,  re- 
ceiving credit  as  such,  they  cannot  avoid  responsibility  to  those 

(59) 


6o  PARTNERSHIPS 

deceived  by  their  actions.  It  is  the  function  of  the  Court  to  de- 
termine whether  or  not  individuals  associated  togethei*  in  busi- 
ness are  partners  and  the  Court  is  guided  in  its  determination  by 
the  maxim  that  "Actions  speak  louder  than  words." 

Whether  or  not  coproprietorship  is  exercised  by  those  in- 
terested in  a  business  is  another  means  by  which  we  test  the 
existence  of  a  partnership,  but  inasmuch  as  several  elements  enter 
into  the  formation  of  every  partnership  relation  no  single  test  can 
be  made  definite.  However,  when  two  or  more  parties  engage 
in  business  together,  exercise  joint  control  over  the  firm  busi- 
ness, have  a  common  property  in  the  assets  of  the  firm,  and 
share  in  the  profits  or  losses  of  the  business,  either  equally  or  in 
proportion  to  their  respective  contributions  thereto,  a  legal  part- 
nership will  be  said  to  exist. 

A  partnership  agreement  will  be  invalidated  if  any  of  the 
partners  are  shown  to  be  legally  incompetent  to.  enter  into  a 
contract.  The  contractual  incapacity  of  certain  classes  of  individ- 
uals has  been  largely  removed  by  recent  statutes,  so  that  in 
Pennsylvania  to-day  lunatics,  minors,  alien  enemies  and  cor- 
porations in  the  absence  of  charter  authority  are  the  only  excep- 
tions to  those  capable  of  entering  into  a  contract  of  partnership. 

As  we  observed  in  contracts,  a  consideration  is  necessary 
to  support  every  agreement,  so  an  agreement  to  form  a  partner- 
ship must  impose  mutual  obligations  upon  its  members  to  be  bind- 
ing upon  them. 

To  summarize,  the  formation  of  a  partnership  may  be  ef- 
fected by  an  agreement,  supported  by  a  consideration,  between 
two  or  more  parties  having  legal  capacity  to  contract,  jointly 
to  conduct  a  business  the  profits  of  which  are  to  be  shared  be- 
tween them. 

General  Nature  of  a  Partnership. 

Having  determined  the  general  principles  which  govern  the 
formation  of  a  partnership,  our  next  inquiry  will  be  directed  to 
ascertain  what  status  it  acquires ;  what  is  the  general  nature  of  a 
partnership?  The  law  of  Pennsylvania  does  not  consider  a  part- 
nership as  a  separate  entity  distinct  from  the  members  composing 
it,  but  regards  it  rather  as  a  collection  of  individuals  operating 
under  a  common  name.  A  partnership  might,  however,  transact 
business  without  the  adoption  of  a  firm  title,  although  a  name 
is  ordinarily  agreed  upon.  The  firm  name  may  be  that  of  either 
one  or  all  the  members  thereof,  or  may  be  purely  fanciful.    At 


PARTNERSHIPS  6i 

common  law  no  individual  or  body  of  persons  can  acquire  the 
exclusive  right  to  a  name,  but  a  Court  of  law  will  restrain  a 
partnership  from  using  the  same  name  as  another  firm  in  the 
same  business,  where  to  do  so  would  operate  as  a  fraud  upon 
said  competitor  or  the  public. 

When  a  firm  has  adopted  a  name,  the  authorized  signature 
of  the  partnership  is  in  the  eyes  of  the  law  the  signature  of  each 
partner,  and  conversely  notes  signed  with  the  individual  names  of 
the  partners  or  with  the  name  of  but  one  of  them  will  bind  the 
firm  if  they  were  issued  as  firm  contracts.  If  the  partnership 
has  adopted  an  arbitrary  name,  which  is  not  that  of  a  natural 
person,  a  deed  of  real  estate  to  the  firm  passes  no  title  at  law, 
it  being  necessary  for  such  a  firm  to  take  title  in  the  name  of  one 
of  its  members. 

The  title  acquired  by  a  partnership  to  property  in  general 
vests  in  the  firm,  but  as  a  firm  has  no  separate  existence  in  law 
the  individual  members  of  the  firm  are  in  theory  regarded  as 
trustees  of  the  firm  property  for  the  benefit  of  firm  creditors. 
A  partner's  interest  in  a  partnership  is  his  right  to  share  in  the 
firm  assets  after  payment  of  all  firm  creditors  and  the  adjust- 
ment of  the  accounts  between  the  partners.  Thus  if  one  partner 
sells  his  interest  in  the  partnership,  he  does  not  transfer  title  to 
the  firm  property,  nor  is  the  firm  property  subject  to  execution 
upon  judgment  obtained  by  an  individual  creditor  of  one  of 
the  partners,  the  execution  only  reaching  the  individual  partner's 
interest  in  said  firm  property. 

It  is  well  settled  that  partnership  real  estate  is  regarded 
as  personalty  for  the  purpose  of  satisfying  claims  of  firm  credit- 
ors. This  in  reality  is  in  the  nature  of  an  equitable  conversion ; 
hence  a  wife's  dower  does  not  attach  to  real  estate  immediately 
upon  its  acquisition  by  the  firm  of  which  her  husband  is  a  mem- 
ber, but  attaches  to  such  real  estate  as  remains  after  payment 
of  firm  debts  and  the  adjustment  of  the  partner's  equities.  It 
will  also  be  observed  that  partnerships  cannot  claim  the  benefit 
of  the  exemption  law  reserving  to  debtors  property  to  the  value 
of  three  hundred  dollars  from  exemption,  which  is  altogether 
a  personal  privilege. 

A  firm  may  at  any  time  dispose  of  its  property  in  the  or- 
dinary course  of  business  with  the  limitation  that  firm  creditors 
be  not  defrauded  thereby.  That  each  partner  is  liable  for  firm 
debts  to  the  extent  of  his  individual  fortune  is  unquestioned,  and 
consequently  firm  creditors  are  not  defeated  by  the  transfer  of 
firm  property,  provided  one  or  more  of  the  partners  remain  sol- 


62  PARTNERSHIPS 

vent.  Each  partner  is  an  agent  of  the  firm,  and  the  act  of  one 
partner  is  the  act  of  the  firm  and  binding  upon  all.  A  partner,  to 
bind  his  co-partners,  must,  however,  act  within  the  scope  of 
the  partnership  business.  The  law  in  this  regard  is  to  the  ad- 
vantage of  the  partnership  and  greatly  enhances  its  credit  in 
the  mercantile  world.  Thus  one  partner  cannot  sell  the  entire 
partnership  property  to  the  injury  of  the  firm,  although  a  part- 
ner's power  to  transfer  title  to  firm  property  is  regulated  largely 
by  the  nature  of  its  business,  and  is  usually  limited  to  trading 
partnerships.  The  weight  of  authority  also  upholds  the  right 
of  one  partner  to  create  a  valid  mortgage  or  other  lien  upon 
firm  property.  One  partner  is  not  permitted,  however,  to  in- 
troduce another  member  into  the  firm  without  the  acquiescence 
of  his  co-partners,  as  mutual  confidence  in  the  character  of  a 
partner  lies  at  the  foundation  of  every  partnership  agreement. 

Liability. 

In  the  event  of  the  death  of  a  partner  his  estate  is  liable 
for  firm  debts,  and  if  necessary  the  surviving  partner  or  part- 
ners may  appropriate  his  interest  in  the  partnership  toward  the 
liquidation  of  the  firm's  indebtedness.  As  we  will  later  learn, 
the  death  of  a  partner  operates  as  a  dissolution  of  the  partner- 
ship, but  the  title  to  firm  property  devolves  upon  the  surviving 
partner  by  operation  of  law.  The  surviving  partner  is  not, 
however,  in  any  sense  the  assignee  of  the  deceased  partner's  in- 
terest, but  is  required  to  account  to  the  representative  of  the  de- 
ceased for  the  latter's  share. 

As  the  firm  title  vests  in  the  surviving  partner,  he  can  trans- 
fer it  to  a  trustee  for  the  benefit  of  creditors  without  the  neces- 
sity of  obtaining  the  consent  from  the  representative  of  the 
deceased. 

Whether  one  partner  can  make  a  general  assignment  of  the 
partnership  property  for  the  benefit  of  creditors,  thereby  divesting 
the  firm  title,  is  a  question  upon  which  the  authorities  are  some- 
what unsettled.  The  view  generally  entertained  is  that  a  transfer 
of  the  entire  firm  property  to  a  trustee  for  creditors  is  not  "an 
act  done  for  the  purpose  of  the  business  of  the  partnership," 
and  that  an  agency  to  do  such  an  act  does  not  result  from  the 
partnership  relation.  The  better  authority  supports  the  doctrine 
that  the  partner  desiring  to  make  a  valid  assignment  for  cred- 
itors must  secure  the  consent  or  ratification  of  his  co-partners. 
If  an  assignment  becomes  imperative,  and  certain  of  the  part- 


PARTNERSHIPS  63 

ners  are  not  accessible  or  are  without  the  jurisdiction,  an  as- 
signment by  one  partner  will  be  upheld  if  made  in  good  faith. 
We  observed  above  that  the  real  estate  owned  by  a  partnership 
was,  by  virtue  of  a  fiction  of  law,  regarded  as  personal  property, 
retaining  the  nature  of  personalty  as  long  as  the  partnership 
exists.  Upon  the  death  of  a  partner  the  real  estate  assumes 
its  true  character  and  money  derived  therefrom  is  payable  to 
the  heir  of  the  deceased  rather  than  an  executor,  it  being  a 
fundamental  principle  of  law  that  real  estate  descends  to  the 
heir  and  personalty  to  the  representatives  of  the  deceased. 

Partnership  property  and  partnership  creditors  are  distinct 
from  the  individual  property  of  its  members  and  their  individual 
creditors.  It  frequently  occurs  that  the  claims  of  firm  creditors 
and  those  of  individual  creditors  conflict.  The  question,  there- 
fore, naturally  arises,  when  a  firm  becomes  insolvent,  upon  what 
basis  will  the  firm  and  individual  property  of  the  partners  be  dis- 
tributed to  the  two  sets  of  creditors?  Partners  subject  them- 
selves to  a  double  liability ;  in  the  first  place,  partnership  property 
is  liable  to  the  creditors  of  the  partnership  to  the  extent  of  the 
partnership  indebtedness,  and  if  the  firm  property  is  insufficient 
to  satisfy  firm  creditors,  the  personal  property  of  the  partner 
becomes  liable.  If  one  partner  is  compelled  to  pay  the  firm 
debts  he  may  compel  his  co-partners  to  share  his  loss  by  a  bill 
in  equity.  A  firm  creditor  will  not  be  allowed  to  satisfy  his  debt 
out  of  the  separate  property  of  a  partner  to  the  exclusion  of  the 
individual  creditor  of  a  partner,  the  principle  to  be  applied  in 
such  cases  providing  that  firm  creditors  shall  have  priority 
over  firm  property  and  individual  creditors  over  the  individual 
property  of  the  debtor  partner.  When,  however,  the  firm  prop- 
erty is  insufficient  to  satisfy  firm  creditor,  he  may  have  recourse 
against  the  separate  property  of  a  partner,  providing  his  sepa- 
rate creditors  have  been  paid.  In  the  event  of  a  firm  owning  no 
property,  firm  creditors  are  allowed  to  share  equally  (pari  passu) 
with  the  separate  creditors  the  property  of  the  several  partners. 

Powers  of  Partners. 

The  general  powers  of  partners  are  implied  from  the  part- 
nership relation,  and  need  not  be  set  forth  in  the  partnership 
articles,  each  partner  being  "the  general  and  accredited  agent 
of  the  partnership"  in  the  management  of  its  business. 

To  clearly  understand  the  scope  of  a  partner's  agency  it 
is  necessary  to  distinguish  the  existence  of  the  firm  as  a  separate 


64  PARTNERSHIPS 

entity  from  the  existence  of  the  partners  composing  it.  Strictly 
speaking,  one  partner  does  not  act  as  the  agent  for  the  other 
partners,  but  as  the  agent  of  the  firm  of  which  they  are  members. 

Every  general  partner  is  regarded  as  the  agent  of  the 
partnership  in  the  transaction  of  the  firm's  business.  As  such 
he  has  authority  to  do  whatever  is  necessary  to  carry  on  such 
business  in  the  ordinary  manner,  and  for  this  purpose  may  bind 
his  co-partners  by  his  acts. 

The  powers  of  a  partner  are  regulated  largely  by  the  nature 
of  the  partnership  business.  A  partner  in  a  firm  engaged  in  buy- 
ing and  selling  goods  has  implied  authority  to  dispose  of  the 
entire  stock  of  goods,  but  a  partner  in  a  firm  of  farmers  has  no 
power  to  sell  the  animals  which  have  been  bought  by  the  firm 
and  are  necessary  for  use  in  cultivating  the  farm.  Again,  if  a 
partnership  is  formed  for  the  increase  and  improvement  of  a 
flock  of  sheep  or  cattle,  a  partner  would  have  no  power  to  dis- 
pose of  the  entire  flock.  Thus  it  will  be  seen  that  the  powers  of 
a  partner  depend  upon  the  nature  of  the  partnership  business. 

In  those  cases  where  a  partner  has  power  to  sell  firm  prop- 
erty he  may  bind  his  firm  by  all  such  acts  as  are  incidental  to  a 
sale.  For  example,  if  a  partner  should  sell  a  certain  lot  of  fruit 
trees  and  should  agree  that  the  purchaser  need  pay  for  only 
those  trees  which  live,  such  a  statement,  being  incidental  to  the 
sale,  would  be  a  condition  binding  upon  the  partnership.  Agree- 
ments made  by  a  partner  in  selling  goods  with  reference  to  their 
fitness  for  a  particular  purpose  or  their  quality  will  be  binding 
upon  the  firm,  being  incidental  to  the  sale. 

This  power  of  sale  which  exists  in  every  normal  partnership 
may  be  relinquished  by  one  or  more  of  the  partners,  either  by  an 
express  agreement  to  this  effect  or  by  conduct.  An  agreement 
by  a  partnership  composed  of  A,  B  and  C  provided  that  A  and 
B  were  to  have  the  entire  management  of  the  firm's  business,  while 
C  was  not  to  interfere  therein  in  any  way.  Under  this  agree- 
ment C's  power  of  agency  was  abandoned.  If  the  terms  of  this 
agreement  were  known  to  the  world,  as  is  the  case  of  joint-stock 
companies,  or  was  known  to  those  dealing  with  the  firm,  C  would 
not  be  able  to  bind  the  partnership  by  any  acts,  even  though 
within  the  scope  of  the  partnership  business. 

If  a  partner  sells  his  interest  in  the  firm,  or  permits  it  to 
be  sold  on  legal  process,  his  agency  for  the  partnership  is  ter- 
minated. 

We  have  observed  that  a  partner's  power  of  sale  is  limited 
to  transactions  connected  with  the  firm's  business,  and  conse- 


PARTNERSHIPS  65 

quently  a  sale  of  firm  property  by  a  partner  to  pay  his  individual 
debts  will  be  invalid,  unless  actual  power  to  do  so  was  given 
him  by  his  co-partners  and  no  firm  creditors  be  defrauded  thereby. 

The  scope  of  a  firm's  business  within  which  the  power  of  a 
partner  is  limited  depends  upon  its  nature,  and  is  determined 
by  the  usual  and  ordinary  course  in  which  it  is  carried  on  by 
those  engaged  in  it  in  the  same  locality.  Thus  it  has  been  held 
that  a  member  of  a  firm  of  machinists  has  no  implied  authority 
to  bind  the  firm  by  a  promise  to  pay  to  a  fund  of  an  association 
organized  to  keep  a  harbor  free  from  ice,  because  to  do  so  would 
not  be  an  act  within  the  ordinary  course  of  the  firm's  business. 

It  would  be  impossible  to  enumerate  the  various  acts  which 
a  partner  is  authorized  to  do,  and  which  would  bind  the  firm. 
The  nature  of  the  partnership  business  is  a  jquestion  of  fact 
to  be  decided  by  a  jury  upon  a  consideration  of  all  the  cir- 
cumstances of  each  particular  case.  Our  inquiry  will  be  lim- 
ited to  the  most  important  and  characteristic  powers  possessed 
by  a  general  partner. 

The  power  of  a  party  to  purchase  property  on  the  credit  of 
the  firm  has  never  been  questioned  in  the  case  of  an  ordinary 
commercial  partnership.  Such  a  relation  could  not  serve  the 
purpose  for  which  it  was  organized  unless  the  partners  had 
power  to  pledge  the  credit  of  the  firm  for  the  price  of  goods 
and  wares  necessary  in  the  business  carried  on  by  it. 

A  partner,  whether  in  a  trading  or  non-trading  partnership, 
has  the  further  power  of  binding  the  firm  by  contracts  for  the 
hire  of  such  servants  and  employees  as  may  be  required  to  con- 
duct the  business  properly.  It  is  a  general  rule  of  law  that  an 
agent  cannot  delegate  his  authority  to  a  sub-agent,  but  a  partner 
in  hiring  a  servant  or  employee  does  not  act  in  the  capacity  of 
an  agent.  All  the  partners  "are  regarded  as  being  present  and 
sanctioning  the  engagements  and  contracts  into  which  they  may 
singly  enter  into  within  the  scope  of  their  partnership  aflfairs." 

Another  general  power  incident  to  every  normal  partnership 
is  the  authority  of  each  partner  to  collect  the  debts  due  the  firm 
and  give  receipts  or  releases  covering  the  same. 

One  partner  may  also  bind  his  co-partner  by  instituting 
legal  proceedings,  and  the  act  of  one  partner  is  the  act  of  the 
firm.  It  is  generally  denied,  however,  that  one  partner  has  the 
power  to  bind  his  co-partners  by  the  submission  of  a  disputed 
question  to  arbitration,  although  in  Pennsylvania  the  Courts 
will  uphold  this  right. 

Commercial  partnerships  are  frequently  compelled  to  nego- 


66  PARTNERSHIPS 

tiate  loans  to  carry  on  their  business,  and,  therefore,  each  part- 
ner has  the  power  to  pledge  the  firm's  credit  in  borrowing  money 
for  the  purpose  of  its  business.  If  this  privilege  is  specially 
denied  to  one  or  more  of  the  members  of  a  firm,  the  power 
to  borrow  on  the  firm's  credit  being  restricted  to  a  particular 
member  or  members,  any  one  having  knowledge  of  this  fact 
could  not  hold  the  firm  liable  for  money  loaned  to  one  of  its 
members  not  privileged  to  borrow  the  same. 

In  the  case  of  a  non-trading  partnership,  no  member  of  the 
firm  has  the  power  to  borrow  money  on  its  credit,  such  an  act  not 
being  incidental  to  the  business  of  such  a  company.  If  in  the 
case  of  a  firm  of  physicians,  for  instance,  it  becomes  necessary 
to  raise  money,  it  must  be  raised  by  the  individuals  composing 
the  firm,  and  not  by  one  member  thereof. 

A  member  of  a  trading  partnership  may  furthermore  issue 
negotiable  paper  in  the  name  of  the  firm,  which  will  be  binding 
upon  the  firm  even  if  it  was  not  issued  for  the  purposes  of  the 
firm's  business.  This  doctrine  is  based  upon  the  principle  that 
it  would  be  manifestly  unjust  to  require  a  bona  fide  holder  of  a 
bill  or  note  indorsed  by  one  of  several  partners  to  apply  to  each 
of  the  other  partners  to  ascertain  whether  they  consented  to  the 
indorsement.  A  member  of  a  non-trading  partnership  has  no 
such  right  to  bind  his  firm  by  issuing  negotiable  paper  of  any 
kind,  this  power  being  limited  to  trading  partnerships  only. 

The  distinction  between  trading  and  non-trading  partner- 
ships is  not  recognized  to  the  same  extent  in  Pennsylvania  as  it 
is  in  most  of  the  other  States  of  the  Union,  but  the  distinction 
is,  nevertheless,  important.  A  partnership  is  regarded  as  a  trad- 
ing one  if  it  contemplates  the  periodical  or  continuous  pur- 
chasing, not  as  incidental  to  an  occupation,  but  for  the  purpose 
of  selling  again  the  thing  purchased.  Every  trading  partner- 
ship habitually  indulges  in  buying  and  selling,  but  this  fact  in 
itself  does  not  furnish  the  basis  of  a  partner's  power  to  bind  his 
firm  by  negotiable  paper,  because  if  it  was  the  custom  of  a  par- 
ticular firm  to  buy  and  sell  for  cash  only  no  power  to  issue  nego- 
tiable paper  would  be  implied  from  the  buying  and  selling  feature 
of  the  business. 

Firms  of  brokers,  farmers,  architects,  ship  carpenters,  steve- 
dores, livery  stable  keepers,  theatre  managers  and  real  estate 
agents  are  among  those  judicially  declared  to  be  non-trading  part- 
nerships. 

A  partner  has  the  power  to  bind  his  co-partners  by  admis- 
sions or  representations  made  concerning  the  partnership  affairs 


PARTNERSHIPS  67 

and  in  the  ordinary  course  of  its  business,  in  the  absence  of 
which  authority  a  partner  could  not  discharge  properly  his 
duties  as  agent  for  the  firm.  Consequently  a  statement  by  a  part- 
ner of  the  amount  due  by  the  firm  to  a  creditor  or  employee  is 
binding  upon  the  partnership.  Such  admissions  or  representa- 
tions to  be  binding  upon  the  partnership  must  be  made  in  the  ordi- 
nary course  of  business;  otherwise,  even  though  relating  to 
partnership  affairs,  they  will  only  be  binding  upon  the  partner 
making  them,  and  not  upon  his  co-partners. 

It  is  a  uniform  rule  of  law  that  a  partner  has  no  authority 
to  bind  his  finn  by  a  deed.  A  deed,  however,  will  be  valid  if 
the  partner  executing  the  same  had  received  previous  authority 
so  to  do  by  his  co-partner  or  partners.  Such  deed  would  also  be 
valid  if  subsequently  to  its  execution  it  was  ratified  by  the  re- 
maining partners. 

A  lease  of  partnership  real  estate  by  one  partner  in  his  own 
name  enures  to  the  benefit  of  the  firm,  the  partners  being  agents 
of  each  other  in  the  partnership  business,  and  a  lease  of  such 
realty  when  brought  into  the  firm  is  as  much  a  partnership  trans- 
action as  the  buying  and  selling  of  goods.  The  acts  of  one  part- 
ner within  the  scope  of  his  authority  are  binding  on  his  co- 
partners, and  if  he  acts  in  good  faith,  he  is  not  responsible  for 
any  loss  arising  from  mere  mistake  or  error  of  judgment. 

A  Partner's  Power  to  Render  the  Firm  Liable  in  Tort. 

We  have  thus  far  discussed  the  power  of  a  partner  to  subject 
his  co-partners  to  contractual  liabilities,  i.  e.,  liability  arising  out 
of  a  contract,  and  have  observed  that  this  power  is  governed  by 
the  nature  and  scope  of  the  partnership  business.  The  same  gen- 
eral principle  applies  with  reference  to  a  partner's  power  to  bind 
his  firm  by  his  torts,  which  comprise  all  such  unlawful  acts  which 
do  not  arise  out  of  a  contract,  but  for  which  the  law  provides 
the  injured  party  with  a  right  of  action  for  damages  against  the 
wrongdoer.  Even  though  the  other  partner  or  partners  are 
wholly  ignorant  of  the  wrongful  act  of  a  co-partner,  or  even 
though  they  made  every  effort  to  prevent  the  same,  they  are 
nevertheless  liable  for  the  torts  of  any  member  of  the  finn  pro- 
vided the  act  was  done  in  the  ordinary  course  of  the  firm's 
business. 

It  has  been  held  in  some  jurisdictions  that  acts  or  omissions 
in  the  course  of  the  partnership  business,  which  are  in  violation 
of  the  law,  will  only  implicate  those  who  are  guilty,  but  the  weight 


68  PARTNERSHIPS 

of  authority  is  to  the  effect  that  if  the  act  or  omission  is  illegal, 
the  firm  is  liable.  Thus  if  a  member  of  a  firm  of  warehousemen 
refuses  to  deliver  the  goods  of  a  customer  unless  illegal  fees  are 
paid,  the  firm  would  be  bound  to  pay  damages  for  the  wrong- 
ful or  illegal  act  of  one  of  its  members.  It  has  also  been  held 
that  a  physician  is  liable  in  damages  for  the  negligent  act  of  his 
co-partner  in  the  treatment  of  a  patient. 

A  partner  has  the  power  to  institute  and  carry  on  ordinary 
legal  proceedings  for  the  recovery  of  firm  property,  the  protec- 
tion of  its  interests  or  the  redress  of  its  wrongs,  and  acts  done 
by  him  in  this  connection  will  be  binding  upon  the  firm.  To 
illustrate,  if  a  partner  in  a  suit  against  a  firm  debtor  orders  an 
attachment  to  be  levied  upon  the  goods  of  a  third  party,  assuming 
that  they  are  the  goods  of  said  firm  debtor,  his  act  is  the  act  of 
the  firm,  and  the  partnership  becomes  liable  therefor. 

A  partner  may  also  bring  criminal  proceedings  against  any- 
one wronging  the  firm  without  consulting  the  remaining  partners, 
provided  action  is  taken  upon  probable  cause  and  without  malice. 
If,  however,  a  partner  secures  the  arrest  and  imprisonment  of  a 
person,  not  in  performance  of  any  duty  owing  to  the  firm  of 
which  he  is  a  member,  but  merely  in  the  performance  of  his  duty 
as  a  citizen,  the  partner  so  acting  is  alone  responsible  for  his  acts. 

The  firm  and  every  member  of  it  are  responsible  in  damages 
for  the  fraudulent  acts  of  one  of  the  partners  done  in  the  ordinary 
course  of  the  partnership  business.  Suppose,  for  example,  that 
goods  are  delivered  to  a  firm  of  commission  merchants  for  sale, 
and  one  of  the  members  of  the  firm  should,  by  fraudulent  repre- 
sentations regarding  the  buyer's  financial  standing,  induce  the 
owner  to  make  a  credit  sale  to  a  third  person,  the  mere  fact 
that  the  co-partners  were  ignorant  of  the  false  representations 
would  constitute  no  defense  to  an  action  for  damages  on  the 
part  of  the  injured  party. 

Likewise  if  one  partner  publishes  a  libel  or  is  guilty  of  a 
slander,  made  to  secure  some  advantage  to  the  firm,  the  partner- 
ship will  be  liable.  In  a  well-known  case  one  member  of  a  firm 
of  furniture  dealers  published  the  following  placard  upon  a  piece 

of  furniture :  "This  was  taken  back  from  Dr. ,  as  he  would 

not  pay  for  it;  for  sale  at  a  bargain.  Moral — Beware  of  dead 
beats."  Although  it  appeared  doubtful  whether  the  above  was  to 
be  regarded  as  a  firm  advertisement,  the  Court  held  that  the 
libelous  matter  was  published  for  the  purpose  of  venting  the  per- 
sonal spite  of  one  of  the  partners,  and  consequently  the  other 
partner,  who  knew  nothing  of  the  matter,  was  exonerated  from 


PARTNERSHIPS  69 

liability.  If  a  partner  in  a  manufacturing  business  publishes  the 
false  statement  that  a  rival  manufacturer  is  infringing  a  patent 
which  they  own,  that  an  injunction  has  been  issued  and  the  com- 
petitor's business  closed  up,  this  is  a  representation  directly 
appertaining  to  the  firm's  business,  and  therefore  every  member 
becomes  liable. 

It  must  be  borne  in  mind  that,  although  every  member  of  a 
firm  is  liable  in  damages  for  the  tort  or  wrongful  act  of  a  co-part- 
ner, if  committed  in  the  course  of  the  partnership  business,  only 
the  member  actually  guilty  of  the  wrong  is  punishable  by  im- 
prisonment. A  warrant  cannot  be  obtained  for  the  arrest  of  an 
innocent  partner  by  one  who  has  been  defrauded  by  the  fraud- 
ulent statements  of  a  co-partner.  In  view  of  the  liability  of  every 
partner  for  the  acts  of  one,  a  man  to  be  protected  should  exer- 
cise prudence  in  choosing  a  partner. 

Powers  of  the  Majority. 

In  partnerships  composed  of  several  members  the  decision  of 
the  majority  is  binding  upon  all  the  partners  whenever  disputes 
or  differences  arise.  The  majority  must,  however,  act  in  good 
faith,  and  their  decision  is  only  binding  in  matters  directly  re- 
lating to  the  ordinary  business  of  the  firm.  For  example,  the 
majority  in  a  partnership  cannot  bind  the  minority  by  a  decision 
to  buy  and  sell  spirituous  liquors  if  this  power  was  not  included 
in  the  original  agreement  of  the  partnership.  Likewise  a  major- 
ity of  the  partners  has  no  power  to  change  the  location  of  the 
firm's  place  of  business. 

Where  in  a  partnership  composed  of  but  two  members  one 
attempts  to  do  an  act  objected  to  by  the  other,  the  dissenting 
partner  may  protect  himself  by  disclaiming  liability  for  the  act, 
and  anyone  receiving  such  notice  would  be  unable  to  hold  him 
liable  for  the  act  of  his  co-partner  which  he  repudiated. 

The  powers  of  a  partner  after  dissolution  will  be  treated 
imder  the  head  "Dissolution,"  to  be  discussed  later. 

Rights  and  Remedies  of  Creditors. 

Firm  creditors  are  also  creditors  of  the  individual  partners 
composing  it,  the  members  of  a  firm  being  not  only  jointly  liable 
but  also  liable  to  the  extent  of  their  individual  fortune  for  all 
firm  obligations.  Hence  the  question  to  engage  our  attention 
will  relate  to  the  rights  and  remedies  of  the  creditors  of  a 
partnership. 


70  PARTNERSHIPS 

As  pointed  out  heretofore,  the  law  does  not  regard  a  part- 
nership as  a  separate  entity,  Hke  a  corporation,  but  regards  it 
rather  as  a  collection  of  individuals  associated  together  in  a  busi- 
ness in  common  with  a  view  to  profit.  Consequently  all  actions 
brought  against  a  partnership  must  be  brought  against  the  in- 
dividual members  composing  it.  In  view  of  this  fact,  judgments 
obtained  by  a  firm  creditor  constitute  a  lien  against  and  is  bind- 
ing upon  both  the  firm  property  and  the  property  of  every  partner. 

Partnership  property  must  be  appropriated  to  the  payment 
of  partnership  debts,  and  a  creditor  of  one  partner  has  no  claim 
to  the  partnership  assets  until  the  partnership  debts  have  been 
first  paid.  An  attachment  made  by  a  creditor  of  one  partner  will 
be  subject  to  the  paramount  claims  of  the  partnership  creditors. 
For  example,  if  a  creditor  of  A  attaches  his  interest  in  the  prop- 
erty of  A,  B  and  Company,  and  a  creditor  of  A,  B  and  Company 
attaches  the  same  property,  the  first  attachment  is  postponed  to 
the  second.  In  other  words,  the  debt  of  the  second  or  firm  cred- 
itor must  be  fully  paid,  after  which  the  first  or  individual  creditor 
would  be  permitted  to  have  his  debt  satisfied  out  of  the 
surplus  left. 

If  firm  property  is  transferred  in  fraud  of  firm  creditors, 
an  attachment  will  issue  against  the  firm  and  every  member 
thereof.  If,  however,  one  partner  applies  partnership  property 
to  the  payment  of  his  individual  debts,  thereby  fraudulently  with- 
drawing the  property  from  firm  creditors,  without  the  knowledge 
or  consent  of  his  co-partners,  an  attachment  would  not  lie 
against  the  firm  in  the  absence  of  any  participation  in  the  fraud- 
ulent act  of  the  co-partner. 

Suppose  in  an  action  for  deceit,  a  creditor  issues  an  attach- 
ment against  the  firm,  the  question  arises,  "Can  he  also  issue 
an  attachment  against  the  property  of  an  innocent  partner?" 
The  Courts  have  decided  in  the  affirmative  where  the  culpable 
partner  was  acting  within  the  scope  of  the  partnership  business. 

E£fect  of  a  Novation. 

The  right  of  a.  partnership  creditor  to  bring  suit  against  the 
partners  composing  it,  and  to  enforce  judgment  against  their 
separate  properties  as  well  as  the  property  of  the  firm,  cannot 
be  prejudiced  by  the  withdrawal  of  a  partner  or  an  agreement 
that  one  or  more  shall  assume  all  liabilities. 

If,  however,  a  party  should  be  admitted  as  a  partner  into 
an  existing  partnership,  a  novation  is  effected  and  the  new  part- 


PARTNERSHIPS  71 

ner  is  not  liable  to  firm  creditors  for  debts  or  liabilities  incurred 
before  he  became  a  partner.  On  the  other  hand,  a  partner  who 
retires  from  a  firm  can  only  be  relieved  from  liability  by  an 
agreement  to  that  effect  between  himself  and  the  members  of  the 
firm  and  the  firm  creditors.  A  creditor  may  substitute  the  lia- 
bility of  a  new  partner  or  accept  new  security  from  the  remain- 
ing partners  for  that  of  the  old  partnership,  provided,  of  course, 
such  an  agreement  is  supported  by  a  legal  consideration. 

In  view  of  the  fact  that  many  partnerships  have  dormant 
or  silent  partners,  it  becomes  essential  to  inquire  into  their  liability 
with  reference  to  firm  debts.  If,  subsequent  to  obtaining  judg- 
ment against  the  ostensible  partners,  a  firm  creditor  discovers  the 
existence  of  one  or  more  dormant  partners  in  the  firm  he  may 
lawfully  proceed  to  judgment  and  execution  against  said  dormant 
members.  A  donnant  partner  is  equally  liable  with  the  active 
partners  upon  negotiable  paper  issued  in  the  firm  name.  Thus,  a 
bank  which  has  discounted  a  bill  or  note  in  the  name  of  the 
ostensible  partner  or  partners  can  recover  against  the  dormant 
partner,  even  though  it  was  ignorant  of  the  latter 's  connection 
with  the  firm  when  it  discounted  the  paper. 

Termination  of  Dormant  Partner's  Liability. 

We  observed  above  that  an  ostensible  partner  is  required  to 
give  notice  of  his  withdrawal  from  the  firm  to  avoid  liability  for 
subsequent  obligations  incurred  by  the  firm.  It  is  different,  how- 
ever, in  the  case  of  a  dormant  partner,  who  is  not  required  to 
give  notice  of  his  withdrawal  from  the  firm,  for  the  reason  that 
his  connection  with  the  firm  being  unknown,  its  credit  was  not 
increased  by  his  membership  therein.  The  public  would  not, 
therefore,  be  misled  by  the  omission  of  the  dormant  partner  to 
give  notice  of  his  withdrawal  from  the  firm. 

A  dormant  partner  is  one  whose  connection  with  the  firm 
is  unknown  and  who  takes  no  active  part  in  the  management  of 
its  business,  both  secrecy  and  inactivity  being  implied  by  the 
word.  If  a  member  of  a  partnership  is  active  in  its  business,  but 
his  connection  therewith  is  unknown,  he  would  be  obliged  to  give 
notice  of  his  withdrawal  to  every  customer  who  dealt  with  the 
firm  while  he  was  a  member.  Such  a  silent  but  active  partner 
would  owe  no  such  duty  to  those  who  never  dealt  with  the  firm 
during  his  connection  therewith. 


^2  PARTNERSHIPS 

Separate  Creditor's  Remedy. 

It  has  been  pointed  out  that  the  members  of  a  partnership 
are  jointly  and  severally  liable  for  all  firm  debts.  In  other 
words  a  firm  creditor  may  proceed  against  the  partnership  prop- 
erty or  the  property  of  every  individual  member  thereof  at 
his  option.  Let  us  now  consider  briefly  the  rights,  not  of  a  firm 
creditor,  but  of  the  individual  creditor  of  one  of  the  partners. 

What  principles  are  to  be  applied  when  a  separate  creditor 
attempts  to  proceed  against  firm  property  in  order  to  reach  a 
partner's  interest  therein?  At  the  beginning  of  this  discussion 
we  noted  that  a  partner's  interest  in  a  firm  consisted  of  the  right 
to  share  in  the  assets  of  the  firm  after  payment  of  all  firm  credit- 
ors and  the  adjustment  of  the  equities  of  the  partners.  In  view  of 
this  doctrine,  a  separate  creditor  of  one  of  the  partners  might 
secure  a  judgment  and  levy  upon  the  partnership  property; 
nevertheless  if  firm  creditors  should  subsequently  issue  executions 
sufficient  to  exhaust  the  firm  property,  the  separate  creditor's  pre- 
vious execution  would  be  of  no  effect. 

Although  a  separate  creditor  may  issue  an  execution  against 
the  entire  firm  assets,  he  acquires  no  legal  interest  in  said  assets. 
If  the  firm  should  become  bankrupt  or  make  an  assignment 
for  the  benefit  of  creditors  subsequent  to  the  separate  creditor's 
levy,  title  to  the  firm  assets  would  pass  to  the  assignees.  Such 
assignees  could  dispose  of  the  partnership  effects  free  from  the 
lien  of  the  separate  creditor's  levy. 

By  application  to  a  Court  of  Equity,  the  creditor  of  an  in- 
dividual partner  may  obtain  a  partnership  accounting  to  ascer- 
tain the  interest  which  the  debtor-partner  may  have  in  the  firm. 
The  purchaser  of  a  debtor-partner's  interest  in  the  firm  property 
under  a  separate  creditor's  execution  does  not  become  a  partner 
in  the  debtor's  place. 

The  weight  of  authority  in  this  country  is  to  the  effect  that 
the  sale  of  a  debtor-partner's  interest  in  a  firm  operates  as  a 
dissolution  of  the  partnership,  and  gives  the  purchaser  the 
right  to  have  a  final  settlement  and  adjustment  of  the  partner- 
ship affairs. 

The  Rights  of  Creditors  in  Equity. 

We  learned  in  the  course  on  contracts  that  a  Court  of 
Equity  had  power  to  administer  justice  in  all  cases  in  which 
the  remedy  provided  in  a  Court  of  Law  was  insufficient.  In 
administering  the  firm  estate  and  the  separate  estates  of  the  part- 


PARTNERSHIPS  73 

ners  composing  it,  a  Court  of  Equity  proceeds  upon  different 
principles  from  those  that  control  a  Court  of  Law. 

It  will  be  recalled  that  in  law,  a  firm  creditor  who  obtained 
a  judgment  could  execute  it  against  firm  proi>erty  or  the  sepa- 
rate estates  of  any  of  the  partners.  In  Equity  a  different  doc- 
trine prevails  providing  that  as  the  separate  creditor  cannot  come 
in  on  the  partnership  estate  until  all  firm  creditors  are  paid,  firm 
creditors  cannot  participate  in  the  separate  estates  of  the  partners 
until  their  individual  creditors  have  been  first  paid.  In  other 
words,  firm  creditors  are  given  priority  over  the  firm  estates,  and 
separate  creditors  are  g^iven  priority  over  the  separate  estates 
of  the  partners. 

This  doctrine  regulating  the  settlement  and  distribution  of 
both  the  partnership  estate  and  the  separate  estates  of  its  mem- 
bers has  been  embodied  in  the  Federal  Bankruptcy  Law  of  1898, 
which  is  in  force  throughout  the  country. 

In  the  event  that  there  is  no  partnership  estate  and  no  living 
solvent  partner,  creditors  of  the  firm  are  permitted  to  share 
equally  with  *he  individual  creditors  in  the  separate  estate  of 
the  bankrupt  partners.  If,  instead  of  the  firm  becoming  bankrupt, 
one  of  the  partners  is  adjudged  a  bankrupt,  a  somewhat  different 
situation  is  presented.  The  United  States  Bankruptcy  act  of  1898 
provides  in  such  cases  as  follows : 

"In  the  event  of  one  or  more  but  not  all  of  the  members 
of  a  partnership  being  adjudged  bankrupt,  the  partnership  prop- 
erty shall  not  be  administered  in  bankruptcy  unless  by  consent  of 
the  partner  or  partners  not  adjudged  bankrupt ;  but  such  partner 
or  partners  not  adjudged  bankrupt  shall  settle  the  partnership 
business  as  expeditiously  as  its  nature  will  permit,  and  account 
for  the  interest  of  the  partner  or  partners  adjudged  bankrupt." 

Until  the  present  bankruptcy  law  of  the  United  States  was 
enacted  the  decisions  were  at  variance  as  to  whether  the  discharge 
of  a  partner  in  bankruptcy  would  relieve  him  from  liability  for 
firm  debts.  The  present  bankruptcy  statute,  however,  clearly  set- 
tles this  point,  in  that  it  takes  from  the  bankrupt  partner  his 
share  in  the  firm  assets  and  permits  firm  creditors  to  prove 
their  claims  against  his  estate,  and  further  provides  that  "a  dis- 
charge in  bankruptcy  shall  release  a  bankrupt  from  all  his  prov- 
able debts,  except  such  as  (i)  are  due  as  a  tax  levied  by  the 
United  States,  the  State,  county,  district  or  municipality  in  which 
he  resides,  (2)  on  judgments  in  actions  for  fraud  or  obtaining 
property  by  false  pretenses  or  false  representations,  or  for  wilful 
and  malicious  injuries  to  the  person  or  property  of  another,  (3) 


74  PARTNERSHIPS 

have  not  been  duly  scheduled  in  time  for  proof  and  allowance  with 
the  name  of  the  creditor,  if  known  to  the  bankrupt,  unless  such 
creditor  had  notice  or  knowledge  of  the  proceedings  in  bank- 
ruptcy, or  (4)  were  created  by  his  fraud,  embezzlement,  misap- 
propriation or  defalcation,  while  acting  as  an  officer  or  in  any 
fiduciary  capacity."  Such  debts  are  never  discharged  by  a  bank- 
ruptcy proceeding. 

It  is  possible  under  our  present  bankruptcy  law  to  adjudge 
a  partnership  bankrupt  while  the  partners  composing  it  remain 
solvent,  the  act  setting  forth  that  any  person  guilty  of  certain 
acts  may  be  declared  bankrupt,  and  further  that  the  word  "per- 
son" shall  include  "partnerships." 

In  the  accounts  of  a  partnership  the  firm  is,  of  course,  a 
debtor  to  each  partner  to  the  extent  of  said  partner's  contribu- 
tion thereto,  and  the  Federal  Bankruptcy  statute  permits  proof 
of  the  claim  of  an  individual  partner  against  the  firm,  and  vice 
versa. 

Neither  a  solvent  partner  nor  the  estate  of  a  bankrupt  part- 
ner can  prove  against  a  co-partner's  estate  in  competition  with 
firm  creditors. 

Upon  the  death  of  a  partner,  all  partnership  debts  being  joint 
and  several,  a  creditor  may  proceed  for  the  collection  of  his 
debt  against  the  surviving  partners  or  against  the  estate  of  the 
deceased  partner.  As  the  surviving  partners  succeed  to  all  the 
rights  and  interests  of  the  partnership,  some  authorities  hold 
that  partnership  creditors  must  first  proceed  against  the  assets 
of  the  firm,  as  the  primary  fund  for  the  payment  of  firm  debts, 
and  deny  the  right  to  the  creditor  to  proceed  in  the  first  instance 
against  the  deceased  partner's  estate  unless  the  firm  assets  are 
first  exhausted. 

Duties  and  Liabilities  of  Partners  Between  Themselves. 

The  first  and  most  important  obligation  imposed  upon  a 
partner,  and  that  which  lies  at  the  very  foundation  of  the  partner- 
ship relation,  is  the  duty  to  exercise  fairness  and  good  faith  to- 
ward his  co-partners.  It  is  unnecessary  to  provide  in  the  partner- 
ship articles  that  this  be  done,  as  the  duty  is  imposed  by  virtue  of 
the  relationship  as  partners. 

This  doctrine  extends  to  negotiations  preliminary  to  form- 
ing a  partnership.  For  example,  assume  that  a  partnership  is 
to  be  formed  for  the  purpose  of  purchasing  certain  property  with 
a  view  of  selling  the  same  for  a  profit.    If  a  party  to  this  agree- 


PARTNERSHIPS  75 

ment  secured  title  to  the  property  before  the  partnership  was 
organized,  a  Court  would  compel  him  to  transfer  the  property 
to  the  firm  at  the  same  price  which  he  paid  for  it.  As  a  further 
illustration,  if  one  partner  induces  another  to  enter  into  partner- 
ship with  him  by  false  representations  with  reference  to  the 
property  which  has  been  contributed  to  the  business,  the  deceived 
party  may  have  the  partnership  contract  annulled  and  recover 
what  he  put  into  the  firm.  He  does  not  have  to  establish  actual 
damage,  but  is  released  from  the  partnership  relation  on  the 
ground  that  his  confidence  was  betrayed. 

The  law  will  not  permit  a  partner  to  derive  any  private  profit 
or  advantage  from  any  transaction  connected  with  the  partner- 
ship business.  All  secret  commissions  paid  to  a  partner  on  firm 
purchases  or  firm  sales  are  firm  property  and  may  be  recovered 
as  such. 

If  one  of  the  partners  without  the  knowledge  or  consent 
of  his  co-partners  engages  in  a  business  which  is  in  competition 
with  that  which  the  firm  was  organized  to  conduct,  he  may  be 
compelled  to  account  and  turn  over  to  the  firm  such  profits 
as  were  realized  by  him  from  such  competing  business. 

As  a  result  of  the  complicated  nature  of  modern  business  re- 
lations, it  frequently  occurs  that  a  member  of  one  firm  is  also 
a  member  of  several  other  firms  carrying  on  distinct  lines  of 
business.  But  in  the  absence  of  an  agreement  that  a  partner  shall 
devote  his  entire  time  and  attention  to  the  business  of  a  single 
partnership,  there  is  no  liability  on  his  part  for  engaging  in  any 
other  business  which  is  not  in  competition  with  that  of  the  finu 
of  which  he  is  a  member.  Thus  the  Courts  have  held  that  a  mem- 
ber of  a  firm  of  warehousemen  would  not  compete  with  his  part- 
nership in  owning  and  managing  wharf  boats.  This  question 
is  sometimes  a  difficult  one  as  is  illustrated  in  the  case  of  a  firm 
of  real  estate  brokers,  where  one  member  purchases  and  sells 
real  estate  as  an  individual  speculation,  but  it  has  been  held  that 
to  do  so  does  not  contravene  the  principle  under  discussion. 

Ordinarily  partnership  articles  provide  that  the  partners 
composing  it  shall  devote  their  entire  time  and  attention  to  the 
firm  business,  and  consequently  a  partner  has  no  right  to  extra 
compensation  for  extra  time  and  services  devoted  to  the  business. 

One  partner  cannot  sue  his  co-partner  at  law  upon  a  matter 
which  is  properly  an  item  in  the  partnership  account.  Action 
may,  however,  be  brought  upon  proper  cause  for  a  dissolution 
of  the  partnership  and  an  accounting.  One  partner  may  also  sue 
his  co-partner  for  a  tort  or  personal  wrong  done  him.    Thus,  for 


76  PARTNERSHIPS 

example,  a  partner  may  sue  a  co-partner  who  wrongfully  injures 
the  plaintiff's  separate  property,  although  it  was  at  the  time  in 
the  possession  and  use  of  the  partnership. 

An  action  could  not  be  maintained  at  common  law  between 
firms  having  a  common  member,  on  the  ground  that  it  was  neces- 
sary for  all  the  partners  to  join  in  an  action  and  the  common 
member  could  not  at  the  same  time  be  both  a  plaintiff  and  a  de- 
fendant. This  doctrine  no  longer  prevails,  and  consequently  the 
fact  that  a  partner  in  the  plaintiff  firm  is  also  a  member  of  the  de- 
fendant firm  will  not  prevent  an  action  being  brought  by  one 
against  the  other. 

Having  considered  the  manner  in  which  a  partnership  may 
be  formed,  its  general  nature,  the  powers  possessed  by  the  part- 
ners composing  it,  and  the  rights  and  remedies  of  creditors,  our 
next  inquiry  will  be  directed  to  ascertain  how  a  partnership  may 
be  dissolved  and  an  accounting  and  proper  distribution  of  its 
assets  effected. 

It  is  not  necessary  that  the  partners  in  a  firm  agree  to  dis- 
solve or  that  a  judicial  decree  be  made  to  this  effect.  The  hap- 
pening of  any  event  which  makes  it  unlawful  to  carry  on  the 
firm  business  any  longer  dissolves  the  partnership  by  operation  of 
law.  For  example,  if  a  partnership  exists  between  a  citizen  of  the 
United  States  and  a  citizen  of  Japan,  upon  a  declaration  of  war 
between  these  two  countries,  the  partnership  would  be  immedi- 
ately dissolved,  as  it  would  be  impossible,  in  view  of  the  allegiance 
which  each  partner  owes  his  respective  country,  to  subserve  the 
ends  for  which  the  partnership  was  formed.  Likewise  in  a 
jurisdiction  where  a  Judge  is  prohibited  from  practicing  law,  a 
partnership  of  attorneys  is  dissolved  by  one  of  its  members  quali- 
fying as  a  Judge. 

The  death  or  bankruptcy  of  any  partner  also  operates  as  a 
dissolution  of  the  partnership.  A  decedent's  estate  passes  by 
operation  of  law  to  his  personal  representatives,  and  a  bank- 
rupt's estate  to  the  trustee  in  bankruptcy.  As  neither  the  per- 
sonal representative  of  the  deceased  partner  nor  the  trustee  of 
the  bankrupt  partner's  estate  has  the  right  to  enter  the  firm  with- 
out the  consent  of  the  other  partners,  the  death  or  bankruptcy 
of  a  partner  necessarily  dissolves  the  firm. 

The  surviving  partners  may  agree  to  carry  on  the  firm 
business,  but  as  the  personal  qualities  of  each  member  of  a  firm 
enter  into  the  inducements  which  led  the  parties  to  form  a  part- 
nership, if  these  inducements  are  withdrawn  by  the  death  or 
bankruptcy  of  a  partner,  the  original  contract  of  partnership  is 


PARTNERSHIPS  -jj 

terminated  and,  being  a  public  fact,  every  one  is  bound  to  take 
notice  of  it. 

A  single  woman,  who  is  a  member  of  a  partnership,  may, 
after  marriage,  continue  as  such  with  the  same  powers  and 
privileges  she  possessed  beforehand. 

Dissolution  by  Act  of  Parties. 

If  in  the  partnership  articles  it  is  provided  that  the  partner- 
ship shall  exist  for  a  fixed  period  of  time,  it  is  dissolved  by  the 
expiration  of  the  time  limited.  If  after  the  expiration  of  the 
original  term  of  the  partnership  the  partners  continue  to  trans- 
act business  without  entering  into  any  new  agreement  as  to  time, 
it  becomes  a  partnership  at  will  and  the  partners  possess  the  same 
rights  as  under  the  original  agreement.  Such  a  partnership  may 
dissolve  at  any  time  by  consent  of  all  the  partners,  either  express 
or  implied. 

If  partnership  articles  provide  that  the  firm  shall  be  incor- 
porated as  soon  as  possible,  the  incorporation  of  the  company 
will  work  a  dissolution  of  the  partnership.  A  partnership  formed 
for  a  single  transaction  is  dissolved  upon  completing  the  con- 
templated business. 

If  a  partner,  under  an  agreement  to  carry  on  a  business  for 
a  specific  length  of  time,  withdraws  from  the  partnership  before 
the  expiration  of  the  term  for  which  it  was  formed,  without  the 
consent  of  his  co-partner,  he  becomes  liable  to  pay  such  damages 
as  his  co-partner  sustains  on  account  of  his  breach  of  agree- 
ment. 

Lunacy  of  a  Partner. 

If  one  of  the  partners  in  a  firm  becomes  insane  and  is 
adjudged  a  lunatic  by  the  Court,  the  partnership  is  not 
immediately  dissolved,  but  the  lunacy  of  one  partner  affords 
ground  for  an  application  to  dissolve  on  behalf  of  the  sane  part- 
ner or  the  representative  of  the  lunatic  partner.  Likewise  the 
permanent  incapacity  of  a  partner  rendering  him  incapable  of 
performing  his  duties  as  a  partner,  justifies  a  Court  in  dissolving 
the  partnership  upon  application  of  the  other  partner,  the  same 
as  in  case  of  lunacy. 

Furthermore,  misconduct  by  one  partner,  which  tends  to 
injure  or  ruin  the  firm's  business,  or  continued  failure  by  one 
partner  to  perform  his  part  of  the  partnership  agreement,  will 


78  PARTNERSHIPS 

support  an  application  to  dissolve  upon  proof  that  the  business 
is  a  failure  and  can  only  be  carried  on  at  a  loss. 

A  notice  of  dissolution  published  in  a  newspaper  in  the  city 
or  county  where  the  partnership  business  is  being  carried  on  is 
sufficient  notice  to  all  persons  who  have  not  had  previous  deal- 
ings with  the  firm  so  as  to  relieve  a  withdrawing  partner  from 
liability  for  future  debts  of  his  co-partners  transacting  business 
under  the  old  firm  name. 

The  dissolution  of  a  partnership  puts  an  end  to  the  sur- 
viving partner's  authority,  and  revokes  all  power  to  create  new 
contracts,  hence  he  cannot  by  express  promise  take  a  debt  out 
of  the  Statute  of  Limitations  so  as  to  make  the  partnership  liable. 

The  surviving  or  liquidating  partner  is  not  entitled  to  com- 
pensation for  winding  up  the  partnership  business,  but  is  en- 
titled to  all  necessary  expenses  incident  to  effecting  a  legal  settle- 
ment of  the  partnership  business. 

Accounting  and  Distribution. 

We  have  now  seen  the  various  ways  by  which  a  partnership 
may  be  dissolved.  What,  we  next  ask,  are  the  rights  and  obliga- 
tions imposed  by  virtue  of  the  dissolution  of  a  partnership  upon 
the  members  composing  it? 

When  a  partnership  is  dissolved  in  any  of  the  Wc.ys  hereto- 
fore mentioned  the  first  object  sought  to  be  accomplished  by  a 
partner  is  to  obtain  an  accurate  accounting  as  to  all  dealings  and 
transactions  connected  with  the  firm's  business.  Equity  always 
favors  the  exercise  of  his  right  to  an  accounting  by  a  partner,  in 
order  that  the  surplus  assets  may  be  properly  distributed,  or  if 
the  account  proves  the  firm  to  be  insolvent,  or  a  partner  a  debtor 
thereto,  proper  contribution  may  be  exacted. 

Method  of  Distribution. 

A  partnership  account  is  required  to  set  forth  in  detail  the 
entire  amount  of  the  firm's  assets  and  liabilities,  and  the  surplus 
to  be  distributed  among  the  partners  is  the  balance  remaining 
after  payment  of  all  firm  creditors,  who,  as  we  have  learned,  have 
a  prior  claim  upon  the  firm's  property.  Losses  sustained  in  the 
business  shall  be  first  paid  out  of  the  profits,  next  out  of  the 
capital,  and  lastly,  if  necessary,  by  the  partners  individually  in 
the  proportion  in  which  they  are  entitled  to  share  profits.  The 
assets  of  the  firm  shall  be  applied,  first,  in  the  payment  of  the 
debts  and  liabilities  of  the  firm,  to  those  not  partners  therein; 


PARTNERSHIPS  79 

second,  in  payment  of  amounts  advanced  by  the  partners  as  dis- 
tinguished from  contributions  of  capital ;  third,  in  payment  of 
the  amounts  contributed  by  each  partner  as  capital  and,  lastly,  the 
surplus  shall  be  divided  among  the  partners  in  the  same  pro- 
portion to  which  the  profits  are  divided.  It  may,  of  course,  be 
provided  in  the  partnership  articles  that  the  annual  profits  shall 
be  added  to  the  capital,  instead  of  being  appropriated  to  a 
separate  fund.  Again,  certain  of  the  partners  in  a  firm  may  only 
contribute  services  and  experience,  while  others  put  up  the  capital, 
and  it  may  be  agreed  that  upon  a  dissolution  of  the  partnership, 
the  firm's  assets  shall  be  divided  equally  between  the  partners 
after  payment  of  firm  debts.  It  will  thus  be  observed  that  the 
parties  may,  by  special  agreement,  change  the  method  of  dis- 
tribution, but  in  the  absence  of  any  such  agreement  the  Courts 
will  distribute  the  partnership  assets  in  accordance  with  the  rules 
above  stated. 

If  a  partner  has  failed  to  contribute  his  share  of  the  capital, 
or  has  made  overdrafts  on  the  firm,  he  cannot  compel  his  co- 
partner to  pay  out  of  his  individual  estate  firm  debts,  until  he  has 
first  repaid  his  overdrafts  and  paid  in  his  share  of  the  capital.  If 
the  fund  then  available  for  payment  of  firm  debts  is  insufficient, 
the  partners  must  bear  the  losses  in  the  proportion  in  which  they 
are  entitled  to  share  the  profits. 

Repayment  of  Advances. 

We  have  referred  above  to  advances  which  one  partner  may 
from  time  to  time  make  to  the  partnership  business.  A  part- 
ner making  such  advancements  is  entitled  to  be  reimbursed  by 
his  co-partners,  and  such  reimbursements  are  required  to  be  made 
before  the  partners  will  be  repaid  the  amount  contributed  by 
them  as  capital. 

Property  contributed  by  the  partners  vests  in  the  firm,  and 
consequently,  if  upon  final  settlement  of  the  partnership  affairs, 
the  assets  of  the  firm  are  insufficient  to  satisfy  this  indebtedness, 
the  partners  must  bear  the  loss  in  the  same  proportion  as  other 
debts  of  the  partnership  are  borne  by  them.  If  the  entire  capital 
is  contributed  by  one  partner,  and  the  firm  assets  are  insufficient 
to  pay  the  same,  the  partner  paying  in  the  capital  is  entitled  to 
contribution  from  his  co-partners,  and  is  a  creditor  of  the  firm 
to  the  amount  of  capital  contributed  by  him  thereto. 

In  case  one  or  more  of  the  partners  becomes  insolvent,  the 
solvent  partners  must  bear  the  losses  in  capital,  the  same  as  other 


8o  PARTNERSHIPS 

partnership  losses.  If  certain  of  the  partners  are  non-resident, 
and  cannot  be  reached  by  writ  from  the  Court  within  whose  juris- 
diction the  partnership  business  is  located,  the  resident  solvent 
partners  must  bear  the  losses  in  proper  proportion. 

Interest  on  Capital. 

Ordinarily  interest  cannot  be  recovered  on  capital  con- 
tributed by  the  partners,  but  when  the  contributions  of  capital 
are  unequal  the  articles  of  co-partnership  often  provide  that  the 
same  shall  bear  interest  at  a  specified  rate.  In  the  absence  of 
such  a  provision,  interest  on  capital  will  not  be  allowed. 

Adjustment  of  Equities  Between  Partners. 

It  has  been  pointed  out  that  the  individual  creditors  of  a 
partner  have  only  a  right  to  his  individual  interest  therein,  which, 
as  we  have  repeatedly  stated,  is  his  "share  of  what  may  remain 
after  payment  of  the  partnership  debts  and  after  a  settlement  of 
the  accounts  between  the  partners."  It  therefore  follows  that  if 
one  partner  is  more  indebted  to  the  firm  than  his  co-partner,  his 
share  will  be  encumbered  by  a  lien  to  make  good  such  deficit  to 
his  co-partner. 

Interest  Payable  by  a  Partner. 

If  the  account  shows  that  one  partner  has  appropriated  firm 
assets  to  his  own  use,  or  has  neglected  to  account  to  his  co-part- 
ners for  firm  property  put  in  his  hands  for  the  purpose  of  wind- 
ing up  the  firm  affairs,  he  will  be  liable  to  pay  interest  as  part 
damages  for  wrongfully  detaining  money  due  his  co-partners. 

Cost  of  an  Accounting. 

As  it  is  necessary  in  winding  up  the  affairs  of  a  partner- 
ship to  have  an  accounting,  the  costs  of  such  are  payable  out  of 
partnership  assets.  If  there  are  no  funds  with  which  to  meet 
this  expense,  the  partners  will  have  to  bear  the  same  equally. 

Partnership  Good  Will. 

After  a  firm  has  been  established  in  business  for  a  consider- 
able time  it  frequently  acquires  a  reputation  for  its  integrity,  the 
quality  of  its  wares  or  products,  etc.    This  reputation  constitutes 


PARTNERSHIPS  8i 

what  is  known  as  the  "good  will"  of  the  business.  The  good  will 
of  a  business  is  property  transferable  like  any  other  species  of 
property,  and  may  be  realized  upon  as  an  asset  of  the  firm. 

It  is  seldom  that  the  good  will  of  a  firm  is  valued  at  the 
annual  or  semi-annual  stock  taking  and  entered  upon  the  books  as 
its  most  valuable  asset.  Upon  dissolving  a  partnership  each 
partner  has  the  right  to  compel  the  sale  of  the  good  will  of  the 
business  and  have  its  value  included  in  the  account. 

The  purchaser  of  the  good  will  of  a  partnership  should  pro- 
tect himself  against  the  possibility  of  the  surviving  partner  or 
partners  engaging  in  the  same  business  after  winding  up  the 
affairs  of  the  old  partnership.  Such  a  contingency  would,  of 
course,  impair  the  value  of  the  good  will  purchased. 

If  no  provision  has  been  made  to  the  contrary  the  pur- 
chaser of  the  partnership  property  becomes  the  owner  of  the 
good  tvill,  and  has  the  sole  right  to  hold  himself  out  as  the  suc- 
cessor to  the  business  of  the  old  firm,  but,  although  the  pur- 
chaser of  a  partnership  has  the  right  to  hold  himself  out  as  the 
successor  of  the  old  firm,  he  must  be  careful  not  to  use  his  pred- 
ecessor's name  in  such  a  way  as  to  expose  any  member  of  the 
former  firm  to  any  liability. 

Appointment  of  Receiver. 

If  for  any  of  the  reasons  we  have  learned  it  becomes  neces- 
sary to  dissolve  a  partnership,  a  receiver  may  be  appointed  to 
carry  on  the  business  until  such  time  as  it  may  be  sold  to  best 
advantage.  A  receiver  will  be  appointed  in  such  cases  where  to 
wind  up  the  business  of  the  partnership  immediately  would  en- 
tail loss.  Pending  the  winding  up  of  the  partnership  business  by 
the  receiver  every  partner  will  be  restrained  from  carrying  on 
the  same  business.  A  partner  may,  however,  engage  in  a  similar 
business  if  he  conducts  it  as  his  own  and  in  a  manner  indicating 
that  it  is  not  the  business  of  the  old  firm. 

At  common  law  a  partner  was  not  allowed  to  limit  his 
liability  for  firm  debts  to  his  contribution  to  firm  capital,  each 
member  of  a  partnership  being  liable  for  the  entire  partnership 
indebtedness.  A  stipulation  in  the  partnership  agreement  that 
one  partner  should  not  be  liable  for  firm  losses  beyond  his  con- 
tribution of  capital  thereto,  although  binding  between  the  part- 
ners, would  be  no  protection  against  the  claim  of  any  firm  creditor. 


82  PARTNERSHIPS 

Limited  Partnerships. 

The  right  to  create  limited  partnerships,  in  which  the 
liability  of  one  or  more  of  the  partners,  is  limited  to  his  contri- 
bution of  capital,  is  the  result  of  legislative  enactment,  and  every 
limited  partnership  must  be  formed  in  strict  compliance  with  the 
statute. 

Although  the  statutes  in  the  various  States,  regulating  the 
formation  of  limited  partnerships  differ  somewhat,  the  distinctive 
characteristic  of  a  limited  partnership  is  the  fact  that  there  must 
be  at  least  one  managing  partner  who  is  liable  as  a  general  part- 
ner for  all  partnership  debts,  together  with  one  or  more  contrib- 
uting partners  who  take  no  active  part  in  the  management  of 
the  business,  who  are  only  liable  for  firm  debts  to  the  extent  of 
their  contribution  to  its  capital,  and  are  known  as  special  partners. 

In  order  to  form  a  limited  partnership  under  the  laws  of  the 
State  of  Pennsylvania,  those  composing  the  firm  are  required  to 
execute  a  certificate  setting  forth  the  name  under  which  the 
partnership  is  to  be  conducted,  the  general  nature  of  its  busi- 
ness, the  names  and  addresses  of  all  the  general  and  special  part- 
ners, distinguishing  which  are  general  and  which  are  special,  the 
amount  of  capital  which  each  special  partner  contributes,  and  the 
period  of  time  during  which  the  partnership  shall  exist.  Said 
certificate  must  be  acknowledged  by  those  signing  the  same  and 
also  recorded  in  the  office  of  the  Recorder  of  Deeds  for  the 
county  in  which  the  principal  place  of  business  of  the  partner- 
ship shall  be  located.  An  affidavit  by  one  of  the  general  partners 
must  be  made  and  filed  setting  forth  that  the  amounts  specified  in 
the  certificate  have  been  paid  in  cash  by  the  special  partners. 
Furthermore,  the  general  terms  of  such  a  partnership  agreement 
must  be  published  in  two  newspapers  once  a  week  for  six  weeks 
after  recording  the  certificate. 

With  the  exception  that  the  statutes  generally  restrict  the 
control  of  a  special  partner  over  the  firm  business  and  limit  his 
liability  for  firm  debts,  a  limited  partnership  is  a  true  partner- 
ship and  is  regulated  by  the  common  law  with  reference  to  the 
rights,  duties  and  liabilities  of  the  partners.  By  very  recent 
statute  in  Pennsylvania,  a  special  partner  may  do  business  for 
the  partnership  and  maintain  a  limited  liability  for  its  debts. 

The  object  in  view  in  authorizing  limited  partnerships  is  to 
stimulate  and  encourage  trade.  If  the  parties  fail  to  comply 
strictly  with  the  requirements  of  the  statute,  the  special  partners 
become  general  partners  and  are  liable  as  such  for  all  firm  debts 
to  the  extent  of  their  individual  fortunes. 


PARTNERSHIPS  83 

A  limited  partnership  may  be  renewed  beyond  the  time 
origfinally  fixed  for  its  duration,  in  the  same  manner  as  is  required 
for  its  original  formation,  and  every  such  partnership  which 
shall  be  otherwise  renewed  or  continued  shall  be  deemed  a  gen- 
eral partnership. 

It  must  be  borne  in  mind,  however,  that  a  limited  partner- 
ship is  not  an  illegal  association  on  account  of  failure  to  comply 
with  the  statutory  requirements.  Non-compliance  with  the 
statute  does  not  render  void  contracts  made  with  the  firm  or 
release  a  firm  debtor  from  any  obligation  he  may  owe  the  firm. 
If  business  is  conducted  by  a  limited  partnership  before  its  certifi- 
cate is  filed  and  recorded  a  special  partner  is  not  rendered  liable 
as  a  general  partner  for  firm  engagements  entered  into  after  a 
subsequent  compliance  with  the  requirements  of  the  statutes. 


Special  Partners. 

Assuming  that  a  limited  partnership  has  been  duly  organized 
in  accordance  with  the  statutes,  it  may  be  transformed  into 
a  general  partnership,  as  regards  creditors,  without  any  new 
agreement  between  its  members.  Any  interference  by  a  special 
partner  in  the  business  affairs  of  the  partnership  beyond  the 
powers  conferred  in  him  by  statute  will  render  such  special  part- 
ner liable  as  a  general  partner.  A  special  partner  usually  has  the 
right  to  examine  the  books  of  the  partnership  and  advise  as  to 
its  management,  but  any  assumption  of  the  powers  of  a  general 
partner  will  forfeit  his  statutory  exemption  from  personal  liability. 

Again,  it  is  of  the  greatest  importance  to  the  general  patrons 
of  a  limited  partnership  that  the  facts  set  forth  in  its  registered 
certificate  should  not  be  changed.  Hence  any  alteration  in  the 
names  of  the  general  partners,  the  nature  of  the  business  or  the 
capital  of  the  finn  will  operate  to  transform  a  limited  partner- 
ship into  a  general  one,  with  all  the  incidents  thereof. 

The  weight  of  authority  is  to  the  effect  that  it  is  unneces- 
sary for  a  special  partner  to  join  in  a  general  assignment  for  the 
benefit  of  creditors. 

The  fact  that  a  special  partner  has  contributed  to  the  firm 
capital  does  not  entitle  him  to  share  with  outside  creditors  in 
the  firm  estate.  Such  special  partner  has  no  greater  rights  against 
the  firm  estate  than  any  other  partner. 

A  limited  partnership  may  be  dissolved  in  any  of  the  ways 
in  which  a  general  partnership  may  be  dissolved,  death  or  bank- 


84  PARTNERSHIPS 

ruptcy  of  a  partner  or  by  expiration  of  the  period  for  which 
it  was  organized,  as  set  forth  in  its  certificate. 

The  statutes  regulating  Hmited  partnerships  frequently 
extend  the  right  to  the  members  thereof  to  terminate  the  partner- 
ship prior  to  the  date  mentioned  in  the  certificate,  if  they  so 
desire.  To  accomplish  this  purpose,  notice  of  the  dissolution 
must  be  given  by  publication.  The  dissolution  does  not  take 
effect,  however,  until  the  statutory  publication  has  been  com- 
pleted. 

Partnership  Associations  or  Joint-Stock  Companies. 

The  statutes  of  Pennsylvania,  New  Jersey  and  many  other 
States  authorize  the  formation  of  a  second  kind  of  limited  part- 
nership, in  which  responsibility  for  the  debts  of  the  association 
are  limited  to  the  capital  subscribed.  None  of  the  partners  in 
such  an  association  is  subject  to  any  personal  liability.  All  busi- 
ness is  conducted  through  a  Board  of  Directors  or  Managers,  the 
association  holds  real  estate,  sues  and  is  sued  in  its  own  name, 
rather  than  in  the  names  of  the  partners  composing  it.  Such  an 
association  may,  moreover,  adopt  a  common  seal.  In  many 
respects  a  partnership  association  closely  resembles  a  corporation, 
but  the  Courts  prefer  to  treat  them  as  a  partnership.  In  view 
of  the  fact  that  a  partnership  association  usually  consists  of  a 
large  number  of  members,  it  is  given  many  of  the  powers  in- 
cident to  a  corporation,  but  it  is  nevertheless  a  partnership,  as  is 
illustrated  by  the  fact  that  no  one  can  purchase  the  interest  of  a 
member  and  participate  in  the  business  of  the  association  without 
the  vote  of  a  majority  of  the  members  in  number  and  value  of 
interest.  Furthermore,  no  charter  is  granted  to  the  members  of  a 
joint-stock  company  or  partnership  association. 

The  Law  of  Pennsylvania  regulating  joint-stock  companies 
provides  substantially  as  follows : 

That  whenever  three  or  more  persons  desire  to  organize  a 
partnership  association  for  the  purpose  of  carrying  on  any  lawful 
business  or  occupation  by  subscribing  and  contributing  capital, 
which  capital  shall  alone  be  liable  for  the  debts  of  such  association, 
they  may  do  so  by  executing  a  statement  setting  forth  the  names 
and  the  amount  of  capital  subscribed  by  each  member,  the  total 
amount  of  capital  and  when  and  how  the  same  is  to  be  paid  in, 
the  character  of  the  business  intended  to  be  carried  on  and  its 
location,  the  name  of  the  association,  which  must  conclude  with 
the  word  "Limited" ;  the  duration  of  said  company  and  the  names 


PARTNERSHIPS  85 

of  the  officers  selected  to  conduct  the  business.  Such  a  statement, 
together  with  any  amendments  thereto,  must  be  recorded. 

The  name  of  such  an  association,  with  the  word  "Limited" 
added,  shall  be  affixed  outside  of  the  office  or  place  in  which  the 
business  of  the  association  is  carried  on  and  its  full  name  must  be 
used  on  all  contracts  and  official  publications  of  said  association. 
The  omission  of  the  word  "Limited"  in  the  use  of  the  name  of 
the  partnership  association  shall  render  the  members  thereof  in- 
dividually liable  for  any  indebtedness,  damage  or  liability  arising 
therefrom. 

Such  an  association  shall  hold  at  least  one  meeting  of  its 
members  every  year,  at  which  there  shall  be  elected  not  less  than 
three  or  more  than  five  managers,  one  of  whom  shall  be  chair- 
man (president),  one  the  treasurer  and  one  the  secretary,  or  the 
office  of  secretary  and  treasurer  may  be  combined  in  one  person. 

No  liability  greater  than  $500  shall  bind  the  association  un- 
less reduced  to  writing  and  signed  by  at  least  two  of  the  managers 
of  the  association. 

The  association  may,  at  such  times  and  in  such  amounts  as 
a  majority  of  its  managers  may  determine,  divide  the  profits 
of  its  business,  but  the  profits  so  divided  shall  not  diminish  the 
capital  of  the  association. 

Dissolution  of  Joint-Stock  Companies. 

A  partnership  association  may  be  dissolved  whenever  the 
period  fixed  for  its  duration  expires  or  whenever  by  a  vote  of  a 
majority  of  its  members  in  number  and  value  of  interest,  it  shall 
be  so  determined.  Notice  of  such  dissolution  is  required  to  be 
published  six  consecutive  times  in  two  newspapers  of  the  proper 
county,  and  immediately  upon  the  commencement  of  said  pub- 
lication of  dissolution  said  association  shall  cease  to  do  business, 
except  such  as  is  necessary  to  beneficially  conclude  its  affairs. 

Upon  the  voluntary  dissolution  of  such  a  partnership  as- 
sociation its  property  shall  be  distributed  as  follows: 

1.  In  paying  all  wages  for  labor. 

2.  In  satisfying  its  other  indebtedness. 

3.  After  liquidating  its  debts  the  assets  remaining  shall  be 
distributed  among  its  members  in  proportion  to  their  respective 
interests. 

Three  liquidating  trustees,  not  more  than  two  of  whom  shall 
have  been  a  manager  of  the  dissolved  association,  shall  be  elected 
by  the  members  of  the  association,  and  shall  have  full  power  to 


86  PARTNERSHIPS 

settle  the  affairs  of  the  association  and  to  distribute  its  assets 
after  payment  of  its  debts  among  the  members  thereof. 

The  last  form  of  business  association  which  we  will  con- 
sider is  that  of  corporations,  the  law  regulating  the  organization 
and  management  of  which  will  constitute  the  subject  of  our  next 
inquiry. 


PROXY 

Enoto  all  8@en  tjp  tbejBie  ^^re^entjei,  That 

of  do  hereby  appoint 

to  he  Substitute  and  Proxy  for 

and  in  name  and  behalf  to  vote  at 

election 

and  at  meeting  of  the  Stockholders  of  said 

as  fully  as  might 

or  could  were  personally  present. 

Jn  ^ttnt00  {ljQI|)Ct0Of ,  have  hereunto  set  hand 

and  seal    this  day  of  19 

Witnesses  present, 


STOCK   SUBSCRIPTION    PRIOR  TO   ORGANIZATION 

{^xX^ttt^^y  it  is  proposed  to  organize,   under  the   laws   of    the 

state  of  ,  a  corporation  to  be  known  as  ,  or 

by  such  other  rmme  as  the  parties  in  interest  may  determine; 

j^nd,  ^^f)ttCS0,  it  is  proposed  that  said  company  shall  have  a 
capital  stock  of  dollars  and  shall  transact  the 

business  of 

Now,  therefore,  the  signers  hereto,  in  consideration  of  their 
mutuxil  promises,  do  severally  agree  to  and  with  each  other  and 
with  ,  the  promoter  and  founder  of  said  company,  that 

they  will  take  and  do  hereby  severally  subscribe  to  the  capital  stock  of 
said  company  to  the  amount  of  the  par  valus  of  stock  set  opposite 
their  respective  names. 

This   agreement   is   conditioned   upon   the   procuring   of  said 


subscriptions  of  at  least 

dollars  to  said 

capital  stock  on  or  before  the                          day  of 

19     . 

Date.              Names.              No.  Shares. 

Amounts. 

CORPORATIONS. 

Definition — Classification — Formation — Liability  of  Stockhold" 
ers — Transfer  of  Shares — Rights  and  Remedies  of  Stock- 
holders— Dizndends — Their  Management — Dissolution. 

FROM  our  study  of  partnerships,  general,  limited  and  joint- 
stock  companies,  it  is  obvious  that  there  are  certain  dis- 
advantages attending  these  forms  of  business  associations 
which  it  is  desirable  to  overcome.  To  meet  the  objects  sought 
to  be  accomplished  the  law  governing  corporations  has  been 
developed  so  that  to-day  corporations  constitute  by  far  the  most 
general  and  important  form  of  business  association  known  to  the 
commercial  world. 

A  corporation  differs  from  a  co-partnership  in  two  important 
particulars.  In  the  first  place  we  have  learned  that  a  partnership 
is  not  regarded  as  a  collective  body,  but  as  an  association  of  in- 
dividuals ;  in  other  words,  a  partnership  cannot  be  considered  dis- 
tinct from  the  members  composing  it.  A  corporation,  on  the 
other  hand,  has  a  distinct  personality  of  its  own  and  exists 
separate  and  distinct  from  the  members  who  compose  it.  This 
distinction  is  further  illustrated  upon  the  death  of  a  member  of 
one  of  these  associations;  in  the  case  of  a  partnership  the  death 
of  a  member  operates  as  a  dissolution  of  the  partnership,  but  in 
the  case  of  a  corporation  the  death  of  a  member  thereof  has  no 
effect  whatsoever  upon  its  status. 

In  the  second  place,  every  partner  is  personally  liable  for  all 
debts  contracted  by  the  partnership,  whereas  one  who  purchases 
stock  in  a  corporation,  thereby  becoming  a  member  thereof,  has 
no  greater  liability  than  is  represented  by  the  stock  which  he 
holds. 

Likewise  membership  in  a  business  corporation  passes  by 
the  sale  and  purchase  of  stock,  the  consent  of  other  stockholders 
being  unnecessary. 

A  further  distinction  between  a  partnership  and  a  corpora- 
tion resides  in  the  fact  that  in  the  former  each  member  is  an 
agent  for  the  others  and  may  bind  them  by  acts  within  the  scope 
of  the  partnership  business;  in  the  latter,  however,  the  business 
is  managed  by  particular  agents  selected  by  vote  of  the  share- 
holders or  members,  and  who  alone  have  power  to  bind  the 
company  as  agents. 

(«7) 


88  CORPORATIONS 

Definition  of  a  Corporation. 

Having  pointed  out  the  principal  distinctions  between  a  part- 
nership and  a  corporation,  we  are  better  able  to  intelligently  con- 
sider a  definition  of  a  corporation.  Innumerable  definitions  have 
been  given  of  a  corporation,  the  most  comprehensive  of  which  is 
as  follows: 

"A  corporation  is  a  collection  of  many  individuals  united  in 
one  body,  under  a  special  denomination,  having  perpetual  succes- 
sion under  an  artificial  form,  and  vested  by  the  policy  of  the  law 
with  the  capacity  of  acting  in  several  respects  as  an  individual, 
particularly  of  taking  and  granting  property,  of  contracting 
obligations  and  of  suing  and  being  sued,  of  enjoying  privileges 
and  immunities  in  common  and  of  exercising  a  variety  of  political 
rights,  more  or  less  extensive,  according  to  the  design  of  its  in- 
stitutions, or  the  powers  conferred  upon  it,  either  at  the  time  of 
its  creation  or  any  subsequent  period  of  its  existence." 

The  well-known  definition  given  by  Chief  Justice  Marshall, 
to  wit,  "A  corporation  is  an  artificial  being,  invisible,  intangible 
and  existing  only  in  contemplation  of  law,"  although  easier  to  be 
remembered,  does  not  give  the  clear  conception  of  a  corporation 
as  the  definition  above  quoted. 

From  the  above  definition  it  will  be  observed  that  when  the 
law  creates  a  corporation  it  calls  into  legal  existence  an  artificial 
person,  a  legal  entity  with  rights  separate  and  apart  from  the 
natural  persons  who  compose  the  same.  Being  an  artificial  per- 
son, it  has  no  power  to  act  until  such  power  has  been  conferred 
upon  it  by  the  sovereignty  creating  it. 

Various  Kinds  of  Corporations. 

Corporations  are  divided  into  corporations  aggregate,  cor- 
porations sole,  public  corporations  and  private  corporations,  the 
latter  class  being  again  subdivided  into  ecclesiastical  or  religious 
corporations,  and  eleemosynary  or  charitable  corporations. 

Corporations  aggregate  are  those  composed  of  two  or  more 
persons.  Corporations  sole  are  those  composed  of  a  single  per- 
son, as,  for  example,  a  minister  who  holds  parsonage,  lands  to 
himself  and  his  successors,  in  right  of  the  parish,  or  the  Governor 
of  the  State,  or  any  other  public  officer  who  is  invested  with  any 
of  the  attributes  of  a  corporation  by  reason  of  his  official  position. 

Public  corporations  are  Government  institutions,  created  by 
law  for  the  administration  of  the  public  affairs  of  a  community, 
such  as  counties  and  municipalities.  Whether  a  corporation  is  to 
be  regarded  as  a  public  one  or  not  depends  upon  the  object  for 


CORPORATIONS  89 

which  it  was  created  rather  than  the  interests  controlling  it.  The 
fact  that  all  the  shares  in  a  corporation  are  held  by  the  State  does 
not  render  it  a  public  corporation.  Thus  it  has  been  decided  that 
a  State  may  hold  the  entire  stock  of  a  State  bank,  but  such  a  bank 
is  not,  on  this  account,  a  public  corporation. 

Private  corporations  are  associations  formed  by  the  volun- 
tary agreement  of  the  members  composing  it,  as,  for  example, 
banking,  railroad  and  manufacturing  companies. 

Religious  corporations  are  such  as  are  organized  for  the  pur- 
pose of  advancing  the  cause  of  religion  or  administering  church 
property  for  religious  purposes.  The  incorporated  churches  ex- 
isting throughout  the  United  States  are  corporations  of  this 
class. 

Charitable  corporations  are  those  organized  for  the  pur- 
pose of  carrying  out  charitable  trusts,  the  distinguishing  feature 
of  this  class  of  corporation  being  that  they  are  not  formed  for 
the  profit  of  the  incorporators  thereof.  Illustrations  of  this 
class  are  corporations  formed  for  the  management  of  free  hos- 
pitals and  asylums  for  the  poor,  insane,  blind  or  incurable;  also 
colleges  and  universities  of  learning  promoted  by  private 
donations. 

A  further  division  of  corporations  not  usually  mentioned  in 
the  authorities  is  that  of  domestic  and  foreign  corporations. 

A  corporation  is  considered  as  domestic  to  the  State  under 
the  laws  of  which  it  was  created. 

A  foreign  corporation  is  one  doing  business  in  a  State  in 
which  it  was  not  incorporated.  For  example,  the  Pennsylvania 
Railroad  Company  is  a  domestic  corporation  of  the  State  of 
Pennsylvania,  whereas,  it  is  regarded  by  the  State  of  New  York 
as  a  foreign  corporation.  A  corporation  is  a  citizen  of  the  State 
granting  its  charter,  regardless  of  the  fact  that  by  subsequent 
transfer  of  stock,  all  the  shareholders  may  be  citizens  of  another 
State  or  States. 

A  domestic  corporation  may  transact  business  within  the 
limits  of  the  State  which  created  it.  It  may,  of  course,  transact 
business  universally,  but  its  powers  are  generally  restricted  by 
other  States.  To  illustrate,  a  foreign  corporation  cannot  lawfully 
transact  business  in  Pennsylvania  until  it  has  first  filed  in  the 
office  of  the  Secretary  of  the  Commonwealth  a  certificate  setting 
forth  the  location  of  its  established  office  in  this  State,  the  name 
of  the  agent  appointed  to  represent  it  here,  the  proper  name  of 
the  corporation,  the  State  wherein  it  was  incorporated  and  the 
general  nature  of  its  business. 


90  CORPORATIONS 

A  foreign  corporation  has  no  standing  in  our  Courts  unless 
it  has  first  filed  the  above-mentioned  certificate.  The  act  does  not, 
however,  prohibit  a  foreign  corporation  from  selling  and  deliver- 
ing goods  to  a  customer  in  Pennsylvania  and  suing  in  our  Courts 
for  their  value.  But  a  foreign  corporation  cannot  make  sales  in 
Pennsylvania  by  shipping  goods  on  consignment,  or  through 
traveling  agents  who  do  not  confine  themselves  to  taking  orders, 
but  make  actual  sales. 

A  foreign  corporation  cannot  hold  real  estate  in  Pennsylva- 
nia, but  may  hold  stock  in  a  Pennsylvania  corporation  owning 
real  estate  in  Pennsylvania.  By  different  statutes,  various  kinds 
of  foreign  corporations  are  given  the  right  to  hold  real  estate 
in  this  State  for  specified  purposes. 

Formations  of  Corporations. 

Unlike  a  partnership,  a  corporation  cannot  be  formed  simply 
by  a  contract  to  this  effect  by  the  individuals  who  are  to  compose 
the  same.  The  right  to  the  special  privileges  enjoyed  by  a  corpora- 
tion can  only  be  granted  by  a  sovereign  power,  either  a  State  or 
National  Legislature.  Hence  there  are  two  parties  to  the  forma- 
tion of  a  corporation:  (i)  the  State,  and  (2)  the  incorporators, 
who  are  the  individuals  composing  the  corporation.  The  crea- 
tion of  a  corporation  being  the  result  of  a  contract,  is  governed 
by  the  general  rules  of  offer  and  acceptance.  The  charter  is  re- 
garded as  an  offer  by  the  State  to  certain  individuals  (the  orig- 
inal subscribers  or  incorporators)  and  to  constitute  a  valid 
contract  must  be  accepted. 

The  usual  manner  of  accepting  a  charter  is  by  a  majority 
vote  of  the  incorporators  at  a  meeting  expressly  convened  for 
the  purpose.  But  it  has  been  held  that  acceptance  of  the  charter 
may  also  be  inferred  from  the  conduct  of  the  incorporators.  Thus 
if  after  a  formal  application  for  a  charter  and  after  the  same 
has  been  granted,  the  incorporators  should  exercise  the  cor- 
porate powers  conferred  upon  them  by  the  charter,  an  acceptance 
of  the  charter  will  be  presumed  by  such  conduct.  As  a  general 
rule  any  person  who  is  competent  to  enter  into  a  valid  contract 
may  become  an  incorporator. 

The  power  of  a  State  Legislature  to  grant  corporate  fran- 
chises has  certain  constitutional  limitations,  the  Constitution  of 
Pennsylvania  and  most  other  States  providing  that  no  charter 
of  incorporation  shall  be  granted  by  special  act,  and  that  corpora- 
tions shall  be  formed  only  in  accordance  with  general  laws. 

Corporations  are  divided  by  the  law  of  Pennsylvania  into 


CORPORATIONS  91 

two  classes:  first,  those  which  are  not  for  profit,  and  second, 
those  which  are  for  profit. 

Principal  among  those  included  in  the  first  class  are  cor- 
porations for  the  support  of  public  worship,  any  benevolent,  char- 
itable, educational,  or  missionary  undertaking;  literary,  medical 
or  scientific  undertaking ;  library  association,  or  for  the  promotion 
of  music,  painting  or  other  finer  arts;  corporations  formed  for 
the  encouragement  of  agriculture  and  horticulture ;  for  the  main- 
tenance of  a  club  for  social  enjoyments,  or  of  a  public  or  private 
cemetery,  for  the  maintenance  of  a  society  for  beneficial  or 
protective  purposes  to  its  members  from  funds  collected  therein; 
corporations  formed  for  the  support  of  fire  engine  companies 
and  for  the  protection  of  trade  and  commerce;  and  for  the  for- 
mation  and   maintenance  of   military   organizations. 

Principal  among  those  corporations  included  in  the  second 
class  are  those  for  the  insurance  of  human  beings  against  death, 
sickness  or  personal  injury;  for  the  construction  and  maintenance 
of  any  specie  of  street,  road  or  highway;  the  establishment  and 
maintenance  of  telegraph  lines,  ferries,  hotels,  market  houses, 
building  and  loan  associations;  associations  for  the  purchase 
and  sale  of  real  estate,  and  for  the  carrying  on  of  any  mechanical, 
mining,  quarrying  or  manufacturing  business,  etc.  As  the  objects 
for  which  these  two  classes  of  corporation  are  formed  differ 
materially,  their  formation  is  regulated  differently. 

Corporations  of  the  first  class  may  be  formed  by  the  volun- 
tary association  of  five  or  more  persons,  and  corporations  of  the 
second  class  by  the  voluntary  association  of  three  or  more  per- 
sons, and  when  so  formed  shall  have  the  following  powers  unless 
otherwise  provided : 

1.  To  have  succession  by  its  corporate  name  for  the  period 
limited  by  its  charter,  and  when  not  so  limited,  perpetually ; 

2.  To  maintain  and  defend  judicial  proceedings; 

3.  To  make  and  use  a  common  seal  and  alter  the  same  at 
pleasure ; 

4.  To  hold,  purchase  and  transfer  such  real  and  personal 
property  as  the  purposes  of  the  corporation  require,  not  exceed- 
ing the  amount  limited  by  its  charter  or  by-laws ; 

5.  To  appoint  and  remove  such  subordinate  officers  and 
agents  as  the  business  of  the  corporation  requires,  and  to  allow 
them  a  suitable  compensation; 

6.  To  make  by-laws  not  inconsistent  with  law,  for  the  man- 
agement of  its  property,  the  regulation  of  its  affairs  and  the 
transfer  of  its  stock; 


92  CORPORATIONS 

7.  To  enter  into  any  obligation  necessary  to  the  transaction 
of  its  ordinary  affairs. 

The  charter  of  a  corporation  for  profit  must  be  subscribed 
by  three  or  more  persons,  one  of  whom  must  be  a  citizen  of  Penn- 
sylvania.   Said  charter  is  required  to  set  forth  the  following : 

The  name  of  the  corporation,  the  purpose  for  which  it  is 
formed,  the  place  or  places  where  its  business  is  to  be  transacted, 
the  term  for  which  it  is  to  exist,  the  names  and  residences  of  the 
subscribers  and  the  number  of  shares  subscribed  by  each;  the 
number  of  its  directors  and  the  names  and  residences  of  those 
who  are  chosen  directors  for  the  first  year; — the  amount  of 
its  capital  stock,  and  the  number  and  par  value  of  the  shares 
into  which  it  is  divided. 

The  law  requires  that  notice  of  the  intention  to  apply  for  a 
charter  shall  be  published  in  two  newspapers  of  general  circula- 
tion printed  in  the  proper  county  for  three  weeks,  which  notice 
must  briefly  set  forth  the  character  and  object  of  the  proposed 
corporation  and  the  intention  to  make  application  for  incorpora- 
tion. 

The  certificate  for  a  corporation  of  the  second  class  (i.  e., 
for  profit)  must  further  state  that  ten  per  cent,  of  its  capital 
stock  has  been  paid  in  cash  to  the  treasurer,  giving  his  name  and 
address.  Said  certificate  must  be  acknowledged  and  recorded 
in  the  office  for  the  Recording  of  Deeds  in  the  county  in  which  the 
principal  office  of  the  corporation  is  to  be  situated. 

Said  certificate,  together  with  proof  of  publication  as  re- 
quired, shall  be  presented  to  the  Governor  of  the  Commonwealth, 
who  shall  examine  the  same,  and  if  he  approves  thereof  he  will 
indorse  his  approval  thereon  and  direct  that  letters  patent  issue 
incorporating  the  subscribers  and  their  associates  and  successors 
into  a:  body  politic  and  corporate,  in  deed  and  in  law  by  the  name 
chosen. 

The  certificate  of  incorporation  shall  be  recorded  in  the  office 
of  the  Secretary  of  the  Commonwealth ;  charters  may  be  amended, 
or  if  the  duration  of  the  corporation  is  limited,  its  charter  may 
be  renewed  upon  proper  application. 

The  law  of  Pennsylvania  requires  that  the  business  of  a 
corporation  be  managed  or  conducted  by  a  board  of  directors, 
a  president,  secretary,  treasurer  and  such  other  officers,  agents 
and  factors  as  it  may  be  necessary  to  appoint. 

The  board  of  directors  of  any  corporation  organized  under 
the  laws  of  Pennsylvania  shall  consist  of  not  less  than  three  mem- 


CORPORATIONS  93 

bers,  or  more  than  fifteen,  and  shall  be  elected  by  a  vote  of  the 
stockholders  at  the  annual  meeting  of  the  corporation. 

The  president  is  the  executive  head  of  the  corporation  and 
presides  at  the  meetings  of  the  board  of  directors,  being  elected 
either  by  the  directors  or  the  members  of  the  corporation  as  the 
by-laws  provide. 

The  secretary  records  the  votes  of  the  corporation  and  keeps 
the  minutes  of  its  transactions  in  a  book  to  be  kept  for  that  pur- 
pose, and  is  sworn  to  perform  his  duties  faithfully. 

The  treasurer  of  a  corporation  is,  of  course,  the  officer 
entrusted  with  the  care  of  its  finances,  and  must  give  a  bond  in 
such  sum  and  with  such  securities  as  the  by-laws  require. 

Vacancies  occurring  among  the  officers  of  a  corporation  may 
be  filled  by  the  directors  until  the  next  election. 

The  Contract  of  Membership. 

The  ordinary  commercial  corporation  consists  of  several 
members  who  have  agreed  between  themselves  to  organize  a 
corporate  association.  The  members  of  such  a  corporation  are 
called  shareholders  or  stockholders.  The  contract  between  them 
is  set  forth  in  their  charter  or  in  the  articles  of  association  agreed 
to  in  pursuance  of  a  general  incorporation  law. 

A  person  may  become  a  member  of  a  corporation  either  by 
a  contract  between  the  original  incorporators  thereof,  or  by  substi- 
tution in  the  place  of  an  existing  member  through  a  transfer  of 
shares. 

Although  the  contract  by  which  the  subscribers  to  the  certif- 
icate of  incorporation  become  members  of  the  corporation  is 
not  effective  until  all  the  conditions  required  by  the  statute  have 
been  complied  with,  nevertheless  the  subscribers  are  bound  by 
their  subscriptions  from  the  time  they  are  made.  As  the  statu- 
tory subscription  is  required  merely  for  the  purpose  of  bringing 
the  corporation  into  existence,  after  the  corporation  has  been 
organized,  further  subscriptions  to  stock,  whereby  new  members 
are  admitted  into  the  association,  is  a  matter  to  be  regulated  by 
the  corporation  itself.  Hence  a  subscription  for  shares  after 
a  corporation  has  been  organized  does  not  render  the  subscriber 
a  shareholder  until  it  has  been  accepted  by  the  company  through 
its  proper  agents. 

The  subscribers  to  a  charter  for  a  corporation  are  liable  to 
pay  the  full  value  of  the  shares  subscribed  by  them.  The  con- 
tract of  a  subscriber  is  an  executory  contract  and  is  like  the  lia- 
bility of  a  partner  to  contribute  his  share  of  capital  as  provided 


94  CORPORATIONS 

by  the  partnership  articles.  Where  the  stock  subscriptions  are 
made  before  incorporation,  upon  obtaining  a  charter  the  sub- 
scribers assume  the  status  of  shareholders.  The  issuing  of  a 
certificate  of  shares  is  never  essential  to  constitute  a  subscriber 
or  a  transferee  of  shares  a  stockholder ;  it  is  merely  evidence  of 
his  right,  and  may  be  demanded  by  the  stockholder  by  virtue 
of  his  right  of  membership. 

An  important  distinction  arises  between  an  agreement  to  pur- 
chase shares  in  a  corporation  and  a  subscription  therefor,  de- 
pending upon  the  intention  of  the  parties.  If  payment  of  the  price 
for  the  shares  and  delivery  of  the  certificate  therefor  are  by 
the  agreement  clearly  intended  to  be  concurrent  acts  the  trans- 
action will  be  a  purchase  and  sale  of  the  shares.  As  the  purchaser 
does  not,  therefore,  become  a  shareholder  until  he  has  received 
his  stock  certificate,  a  breach  of  his  agreement  to  purchase  be- 
fore receiving  the  certificate  would  only  render  him  liable  to  the 
extent  of  damages  actually  suffered  by  the  corporation  on  ac- 
count of  said  breach. 

On  the  other  hand,  an  ordinary  subscription  to  stock  con- 
templates that  the  subscriber  shall  become  invested  with  all  the 
rights  and  liabilities  of  a  shareholder  before  the  whole  amount 
of  the  shares  subscribed  by  him  have  been  paid  in.  A  subscriber 
to  stock  in  a  corporation  becomes  entitled  to  vote  at  the  meetings 
and  share  in  the  dividends  earned  by  the  corporation,  but  is 
liable  to  contribute  the  amount  of  the  shares  subscribed  when 
called  upon  or  assessed  by  the  Board  of  Directors. 

Additional  Subscriptions. 

A  subscription  for  shares  of  stock  in  a  corporation  may  be 
made  conditionally,  in  which  event  the  subscriber  does  not  be- 
come a  shareholder  in  the  company  until  the  conditions  speci- 
fied have  been  performed.  Such  a  subscription  is  in  reality  only 
an  oflfer  to  become  a  shareholder  upon  fulfilment  of  certain  con- 
ditions. The  performance  of  the  stipulated  conditions  is  an  ac- 
ceptance of  the  offer,  and  the  subscriber  thereupon  becomes  a 
shareholder,  with  incident  rights  and  liabilities.  For  example,  it 
is  quite  usual  for  a  man  to  subscribe  before  a  certain  time.  Un- 
less the  amount  specified  was  subscribed  within  the  time  limited 
the  subscriber  would  not  be  bound  by  his  subscription.  Simi- 
larly a  subscription  for  shares  in  a  railroad  company  by  the 
owner  of  a  farm  upon  condition  that  a  station  be  located  at  a 
certain  corner  thereof  would  not  be  binding  upon  the  subscriber 
if  the  railroad  built  the  station  at  a  point  two  miles  distant 


CORPORATIONS  95 

from  subscriber's  farm.  Some  authorities,  however,  take  a  view 
that  it  is  a  fraud  toward  the  other  stockholders  to  permit  one 
to  subscribe  to  stock  with  any  secret  condition  attached  to  the 
subscription.  Others  seeing  the  name  of  the  subscriber  upon 
the  books  of  the  company  might  themselves  be  induced  to  sub- 
scribe by  virtue  of  the  additional  security  thus  offered.  But  the 
weight  of  authority  is  to  the  effect  that  it  is  unfair  to  force  a 
man  to  subscribe  to  stock  when,  for  example,  the  promise  to 
build  a  station  on  his  land  has  been  broken,  which  was  his  only 
reason  for  subscribing.  Such  conditions  as  are  attached  to  a  stock 
subscription  must  not,  however,  be  of  such  a  nature  as  clearly 
indicates  an  intention  to  deceive  the  public, 

A  conditional  subscription  must  not  be  confounded  with  a 
subscription  upon  special  terms.  These  distinctions  may  appear 
to  be  rather  hair-splitting,  but  they  are,  nevertheless,  as  important 
as  they  are  easily  understood.  As  we  observed  above,  a  sub- 
scriber upon  condition  does  not  become  liable  on  his  subscription 
until  the  required  condition  has  been  performed.  A  subscription 
upon  special  terms  is,  for  example,  one  providing  that  the  sub- 
scriber may  pay  his  subscription  at  a  particular  time,  or  instead  of 
paying  the  same  in  money,  may  do  so  by  contributing  machinery 
or  other  property.  Such  a  subscription  is  an  absolute  one,  but 
the  rights  and  liabilities  of  the  subscriber  are  governed  by  the 
special  terms  stipulated.  Ordinarily  a  subscription  upon  special 
terms  cannot  be  made  before  a  company  has  received  its  charter, 
but  after  a  corjjoration  has  been  organized  such  a  subscription  is 
regarded  as  an  offer  which  becomes  binding  upon  acceptance  by 
the  proper  officers  of  the  corporation. 

Subscriptions  Obtained  by  Fraud. 

It  is  a  well-established  rule  of  law,  as  we  learned  in  our  study 
of  contracts,  that  if  a  person  is  induced  to  enter  into  a  contract 
by  false  representations  or  fraudulent  statements  made  by  the 
other  contracting  party  or  his  agent,  the  contract  may  be  avoided, 
at  the  option  of  the  innocent  party.  This  principle  applies  with 
full  force  to  contracts  of  membership  in  a  corporation ;  and  conse- 
quently, if  a  subscription  for  shares  has  been  obtained  through 
fraudulent  representations  the  subscriber  may  repudiate  his  sub- 
scription and  withdraw  as  a  member  of  the  corporation.  A  false 
statement  regarding  the  contents  of  the  charter  would  not,  how- 
ever, entitle  a  subscriber  deceived  thereby  to  avoid  payment  of  his 
subscription,  because  a  man  in  subscribing  for  .shares  undert.ikes 
to  become  a  member  of  a  particular  corporation,  and  as  his  con- 


96  CORPORATIONS 

tract  of  membership  is  contained  in  the  company's  charter  (which 
is  of  pubUc  record)  he  is  bound  at  his  own  peril  to  inform  him- 
self of  its  contents.  Furthermore,  such  false  statements  as  will 
give  a  subscriber  the  right  to  repudiate  his  subscription  must  not 
relate  to  a  matter  of  public  law,  must  not  be  an  expression  of 
opinion,  but  a  positive  statement  of  fact,  which  must  have  been 
made  by  an  agent  authorized  to  speak  on  behalf  of  the  corpora- 
tion; they  must  have  constituted  a  material  inducement  to  the 
subscription,  and  the  party  deceived  by  such  false  statements 
must  act  promptly  in  annulling  his  subscription,  otherwise  his 
privilege  is  lost. 

Rescision  of  Contract  of  Membership. 

"Unlike  a  partnership,  a  corporation  cannot  release  any  of 
its  members  from  liability  by  consenting  to  a  cancellation  of  the 
shares  of  a  subscriber.  The  Supreme  Court  of  Pennsylvania  has 
held  that  the  Directors  of  a  Corporation  are  Trustees  for  all  the 
stockholders  and  that  it  is  an  abuse  of  their  trust  to  single  out 
some  of  the  stock  subscribers  and  release  them  from  liability. 

It  may  be  laid  down  as  a  uniform  rule  of  law  that  a  share- 
holder in  a  corporation  can  escape  from  the  obligation  of  his 
contract  only  by  one  of  the  following  methods :  ( i )  By  a  transfer 
of  his  shares  and  an  acceptance  for  the  transfer  by  the  corpora- 
tion; (2)  by  a  forfeiture  and  sale  under  authority  given  the  com- 
pany by  its  charter;  (3)  by  dissolution  of  the  company;  (4)  by 
act  of  the  majority  in  winding  up  the  business  of  the  company 
and  the  surrender  of  its  charter;  (5)  by  an  act  of  the  share- 
holders, where  permission  to  withdraw  is  expressly  conferred  by 
the  charter,  and  (6)  by  unanimous  consent  of  the  members  of 
the  company  under  legislative  authority. 

Many  charters  contain  a  provision  that  the  shares  of  a 
stockholder  may  be  declared  forfeited  and  sold  for  non-payment 
of  assessments.  The  assessments  must  be  authorized  by  the 
proper  agents  of  the  corporation  and  if  the  amount  due  is  ten- 
dered to  the  proper  agent  of  the  corporation  at  any  time  before 
a  sale  for  non-payment  has  actually  taken  place,  a  sale  made  there- 
after will  be  void. 

Where  a  power  has  been  given  to  declare  a  forfeiture  of 
shares  for  non-payment  of  calls  upon  a  member,  the  corporation 
may  either  exercise  this  power  or  sue  for  the  unpaid  calls  in  an 
action  at  law.  If  a  corporation  decides  to  rescind  a  stockholder's 
contract  of  membership  by  a  forfeiture  and  sale  of  his  shares 
therein  on  account  of  non-payments  of  calls  made  for  the  unpaid 


CORPORATIONS  97 

portion  thereof,  it  may  do  so  in  one  of  two  ways:  (i)  The 
shares  must  either  be  sold  as  paid  up  only  to  the  amount  actually 
paid  on  them  and  subject  to  further  calls  to  the  full  value  of  the 
shares,  and  the  proceeds,  less  expenses,  turned  over  to  the  for- 
mer holder,  or  (2)  the  shares  must  be  sold  as  full  paid  and  after 
deducting  from  the  price  received  the  amount  of  calls  which 
the  former  holder  refused  to  pay,  the  balance  is  refunded  to  him. 
It  should,  of  course,  be  borne  in  mind  that  if  the  by-laws  provide 
a  penalty  for  non-payment  of  assessments,  the  proceeds  derived 
from  a  sale  of  shares  could  be  retained  by  the  corporation  as  such 
a  penalty. 

Liability  of  Stockholders. 

Whether  one  is  an  original  subscriber  of  stock  or  becomes 
such  after  a  corporation  has  been  formed,  he  is  liable  to  con- 
tribute to  the  corporation  the  full  amount  of  the  shares  he 
subscribed. 

It  sometimes  occurs  that  the  promoters  of  a  corporation, 
having  difficulty  in  raising  sufficient  capital  to  properly  conduct 
business,  offer  to  sell  stock  at  a  percentage  of  its  face  value,  say 
thirty-three  and  one-third  per  cent.  That  is,  a  purchaser  would 
receive  $30,000  worth  of  stock  upon  payment  of  $10,000.  Such 
a  purchaser  is  entitled  to  receive  dividends  upon  his  stock  the 
same  as  if  he  had  paid  the  full  value.  Consequently  it  would 
appear  upon  the  books  of  the  company  that  the  full  amount 
had  been  paid,  and  the  treasury  of  the  company  would  appear 
to  be  in  better  shape  than  it  actually  was. 

Assume,  that  under  these  circumstances  a  party,  upon  exam- 
ination of  the  corporation's  books,  is  induced  to  loan  it  a  large 
sum  of  money.  It  subsequently  develops  that  the  purchaser  upon 
the  terms  mentioned  above  has  never  paid  in  the  full  value  of  his 
stock.  The  principle  of  law  governing  such  a  case  is  as  follows: 
Every  subscriber  to  stock  of  a  corporation  guarantees  the 
amount  of  the  face  value  of  the  stock  standing  in  his  name  shall 
be  used  in  payment  of  the  liabilities  of  the  corporation.  He 
cannot  escape  his  liability  to  pay  the  full  amount  of  his 
subscription  into  the  treasury  of  the  company  for  the  benefit 
of  its  creditors  by  any  agreement  with  the  corporation.  In  other 
words,  the  contract  would  be  valid  as  originally  made,  provided 
the  rights  of  creditors  did  not  intervene. 


98  CORPORATIONS 

Transfer  of  Shares. 

The  right  of  a  stockholder  in  a  corporation,  as  represented 
by  his  certificate  of  stock,  is  personal  property,  and  as  such  may 
be  bought  and  sold  like  any  other  personal  property.  The  by- 
laws of  all  corporations  provide  that  no  holder  of  a  certificate 
of  stock  shall  be  recognized  by  the  corporation  or  be  entitled  to 
receive  dividends  or  vote  at  its  elections  until  his  name  has  been 
properly  entered  upon  the  company's  books. 

The  means  whereby  a  stockholder  may  sell  his  rights  in  a 
corporation  is  by  transferring  his  certificates  of  shares  to  another. 
Such  a  transfer  of  shares  in  a  corporation  operates  as  a  substitu- 
tion of  a  new  shareholder  in  the  place  of  an  outgoing  shareholder 
and  an  assumption  by  the  former  of  all  the  rights  and  liabilities 
which  attached  to  the  latter,  who  is  discharged  from  all  further 
liability  to  contribute  capital  and  loses  all  right  to  share  in  the 
company's  profits  and  to  participate  in  the  management  of  its 
affairs. 

When  a  transfer  of  shares  has  taken  place  the  question 
arises,  who  is  liable  for  unpaid  calls,  in  determining  which  ques- 
tion it  is  necessary  to  distinguish  between  the  rights  of  the  cor- 
poration as  against  the  parties  to  the  transfer,  and  the  rights 
and  liabilities  of  the  transferor  and  transferee  as  between  each 
other. 

It  may  be  stated  as  a  general  rule  that  as  between  a  company 
and  its  shareholders  the  party  transferring  shares  is  discharged 
from  liability  to  pay  calls  made  after  the  execution  of  the  trans- 
fer, and  that  such  liability  rests  upon  the  party  receiving  the 
shares  (the  transferee) .  One  cannot,  however,  by  transferring  his 
shares  to  another  avoid  responsibility  for  calls  made  upon  his 
stock  prior  to  the  transfer.  After  a  call  has  been  made,  a  cor- 
poration has  a  cause  of  action  against  a  shareholder  which  can- 
not be  discharged  except  with  the  corporation's  express  consent. 

The  liability  for  unpaid  calls  so  far  as  the  transferor  and 
transferee  of  the  shares  are  concerned  depends  altogether  upon 
the  agreement  between  them. 

Having  learned  upon  whom  the  law  places  liability  to  pay 
unpaid  calls  upon  shares  of  stock  in  a  corporation,  let  us 
next  inquire  who,  as  between  the  transferor  and  transferee  of 
shares  is  entitled  to  dividends,  payable  out  of  the  profits  earned 
before  the  transfer,  but  which  are  not  declared  until  after  the 
transfer  has  been  executed. 

It  has  been  decided  that  the  shareholder  at  the  time  the 
dividend  is  declared  is  entitled  thereto,  regardless  of  the  time 


CORPORATIONS  99 

said  dividend  was  earned.  It  is  necessary  that  the  agents  of  a  cor- 
poration should  know  to  whom  it  is  liable  to  pay  dividends  which 
have  been  declared.  A  corporation  is  protected  in  paying  divi- 
dends to  those  who  are  the  legal  holders  of  shares  on  the  stock 
books  of  the  company  at  the  time  the  dividends  are  declared. 

After  a  corporation  has  become  insolvent  shares  of  stock 
therein  cease  to  be  subject  of  legitimate  traffic.  A  transfer  there- 
after would  be  but  a  subterfuge  to  avoid  liability,  which  would 
not  be  permitted.  It  is  the  duty  of  the  corporation  to  call  in  the 
outstanding  capital,  satisfy  all  creditors  and  wind  up  its  business 
as  soon  as  possible. 

Registry  of  Transfers. 

The  by-laws  of  practically  every  corporation  provide  that 
its  shares  shall  be  transferable  only  by  entry  upon  the  books  of  the 
company,  and  that  a  new  certificate  shall  be  issued  to  the  trans- 
feree upon  a  surrender  of  the  outstanding  certificate.  This  is  for 
the  purpose  of  providing  the  corporation  and  those  dealing  with 
it  means  of  ascertaining  who  are  its  shareholders.  Otherwise 
it  would  be  impossible  to  know  who  are  entitled  to  vote  at  the 
meetings,  to  whom  dividends  should  be  paid  and  who  are  liable 
as  shareholders  to  the  company  as  debtors  on  account  of  unpaid 
calls. 

Shares  of  stock  in  a  corporation  are  by  general  mercantile 
usage  assignable  by  indorsement  and  delivery  of  the  certificate 
issued  to  the  owner  as  evidence  of  his  rights.  A  power  of  at- 
torney to  execute  a  transfer  upon  the  stock  books  of  the  corpora- 
tion is  contained  upon  the  back  of  the  certificate.  If  the  assign- 
ment and  power  of  attorney  are  executed  in  blank,  the  certificate 
may  pass  from  one  person  to  another  and  the  last  holder  will 
have  the  right  to  fill  up  the  assignment  and  power  of  attorney 
and  complete  the  transfer  by  entry  upon  the  books  of  the 
corporation. 

A  corporation  is  compelled  to  enter  a  valid  transfer  of  the 
shares  upon  its  books.  If  the  officers  of  a  corporation  refuse 
to  do  so,  the  transferee  may  enforce  his  rights  by  a  bill  in  equity. 
In  a  well-known  case  a  certain  party,  by  writing  a  pamphlet  at- 
tacking the  methods  of  the  Standard  Oil  Company,  made  him- 
self very  obnoxious  to  that  corporation.  He  subsequently  pur- 
chased some  of  its  stock  and  its  officers  refused  to  enter  his 
name  upon  the  stock  books  as  the  legal  owner  thereof.  By  appli- 
cation to  a  Court  of  Equity  he  forced  them  to  do  so.  Although  a 
stock  certificate  is  in  neither  form  nor  character  a  negotiable 


loo  CORPORATIONS 

instrumetf^  it  approximates  it  as  nearly  as  practicable.  The 
purchaser  is  assured  under  the  seal  of  the  corporation  that  the 
stockholder  is  entitled  to  so  much  stock,  which  can  be  trans- 
ferred on  the  books  of  the  corporation  in  person  or  by  attorney, 
when  the  certificate  outstanding  is  surrendered.  This  is  a  guar- 
antee that  whoever  in  good  faith  buys  the  stock  and  produces  to 
the  corporation  the  certificate,  regularly  assigned,  is  entitled  to 
have  the  stock  transferred  to  him. 

Rights  and  Remedies  of  Stockholders. 

In  considering  the  rights  and  remedies  of  the  individual  mem- 
bers or  shareholders  in  a  corporation  it  is  of  the  utmost  impor- 
tance to  bear  clearly  in  mind  that,  while  a  corporation  is  regarded 
in  law  as  an  artificial  person  or  entity  viewed  as  a  collective  body, 
it  is  in  reality  an  association  of  individuals,  and  no  law  can  alter 
this  fact.  Hence  there  is  a  distinction  between  those  rights  which 
belong  to  the  shareholders  individually  and  those  belonging  to 
them  collectively  or  in  their  corporate  capacity.  An  illustration 
will  perhaps  make  this  distinction  clear.  After  a  dividend  has 
been  declared  by  the  proper  agents  of  the  corporation  each  share- 
holder has  the  right  to  sue  the  corporation  to  recover  the  amount 
payable  on  his  shares,  this  being  an  individual  right.  If,  however, 
the  agents  of  a  corporation  should  wrongfully  refuse  to  declare 
a  dividend  when  it  is  their  duty  to  distribute  the  profits  earned, 
this  would  affect  the  collective  rights  of  all  the  stockholders,  but 
no  one  could  sue  for  any  particular  portion  of  the  undivided 
profits.  The  right  to  have  a  dividend  declared  must  be  enforced 
by  action  in  the  corporation,  rather  than  against  it,  being  a  collec- 
tive rather  than  an  individual  right. 

Moreover,  in  every  corporation  the  entire  management  of 
the  corporate  affairs  is  entrusted  to  certain  individuals,  the 
agents  authorized  to  act  for  the  company  and  who  are  given  the 
power  of  protecting  the  company  from  injuries  and  enforcing 
its  collective  rights.  Hence  wrongs  which  affect  the  entire  body 
of  shareholders  affects  the  corporation,  and  redress  must  be  had 
through  its  proper  agent,  otherwise  great  inconvenience  and  un- 
necessary expense  would  result  if  any  individual  shareholder  could 
bring  suit  for  every  injury  to  the  corporate  rights.  Therefore, 
to  maintain  a  suit  to  enforce  the  rights  of  an  individual  stock- 
holder, it  must  first  be  proven  that  the  proper  agent  or  agents  of 
the  corporation  have  refused  to  act  and  that  all  remedies  within 
the  corporation  have  been  first  exhausted. 

If  the  agents  of  a  corporation  are  themselves  guilty  of  a 


CORPORATIONS  loi 

wrong,  a  shareholder  may  maintain  a  suit  in  Court  without  prov- 
ing that  he  first  requested  the  guilty  agents  to  proceed  in  the 
name  of  the  corporation  against  themselves,  which  would  be  an 
absurdity. 

It  may  be  laid  down  as  a  settled  rule  that  no  shareholder 
can  interfere  with  the  management  or  dictate  the  policy  a  corpora- 
tion shall  follow  so  long  as  the  duly  appointed  agents  are  acting 
honestly  within  the  discretionary  power  conferred  upon  them 
by  the  charter  or  by-laws.  If  a  shareholder  is  dissatisfied  with 
the  management  of  a  corporation  his  remedy  is  to  elect  other 
agents  in  the  manner  and  at  the  time  provided  by  the  charter. 

If  under  proper  circumstances  a  shareholder  brings  suit  to 
protect  his  interest  in  a  corporation  the  relief  granted  will  enure 
to  the  benefit  of  the  corporation  and  all  other  shareholders  simi- 
larly interested,  who  are  regarded  as  parties  thereto  and  may 
properly  be  joined  as  complainants,  although  it  is  not  necessary 
to  do  so. 

Neither  the  agents  of  a  corporation  nor  a  majority  of  its 
stockholders  have  any  right  to  direct  its  affairs  except  in  accord- 
ance with  the  provisions  of  its  charter,  and  any  action  to  the  con- 
trary will  give  any  aggrieved  stockholder  a  right  to  bring  suit 
to  restrain  the  act  or  recover  damages  sustained  thereby. 

Every  stockholder  has,  as  incidental  to  his  ownership  of 
stock  in  a  corporation,  the  right  to  vote  for  the  election  of  its 
officers  or  agents  and  for  the  principles  embodied  in  its, constitu- 
tion and  by-laws,  and  may  sometimes  vote  to  decide  the  general 
policy  upon  which  the  business  of  the  corporation  is  to  be  con- 
ducted, if  such  right  is  given  by  the  by-laws.  Any  stockholder 
may  delegate  this  right  to  vote  at  a  particular  meeting,  and  the 
party  receiving  this  right  is  called  a  proxy.  The  power  of  a 
proxy  to  vote  may  be  withdrawn  at  any  time. 

Right  to  Receive  Dividends. 

The  object  for  which  every  ordinary  business  corporation 
is  formed  is  the  pecuniary  profit  of  its  shareholders  or  members. 
Consequently  any  net  increase  of  the  capital  of  a  corporation  is 
distributable  as  profits  to  each  shareholder  in  proportion  to 
the  number  of  shares  held  by  him. 

Dividends  can  only  be  paid  out  of  the  profits  of  the  net  in- 
crease of  capital,  and  cannot  be  drawn  upon  the  capital  con- 
tributed by  the  shareholders  for  the  purpose  of  carrying  on  the 
company's  business.  The  surplus  acquired  by  a  corporation  over 
and  above  its  capital  and  debts  incurred  for  running  expenses 


102  CORPORATIONS 

becomes  profits,  and  may  be  divided  among  the  shareholders  or 
used  to  expand  the  company's  business  as  its  authorized  agents, 
in  the  exercise  of  a  proper  discretion,  may  direct.  The  directors 
of  a  corporation  are  not  required  to  divide  the  entire  profits 
earned,  but  may  reserve  sufficient  to  meet  future  or  contingent 
claims  and  to  enlarge  the  corporate  business. 

Many  corporations  create  two  classes  of  stock,  common  and 
preferred.  The  holder  of  preferred  stock  is  entitled  to  receive 
a  dividend  up  to  a  certain  percentage,  as  indicated  in  his  certificate 
of  stock,  before  the  holder  of  common  stock  has  any  right  to 
claim  a  dividend.  The  right  to  issue  preferred  stock  must  be  spe- 
cially granted. 

A  dividend  properly  declared  by  the  directors  of  a  corpora- 
tion cannot  be  revoked  subsequently.  All  shareholders  on  the 
books  of  the  corporation  at  the  time  a  dividend  is  declared  have  a 
legal  claim  against  the  company  for  the  payment  of  the  amount 
of  dividend  due  them. 

Right  to  Preemption. 

If  a  corporation  decides  to  increase  its  capital  by  issuing 
an  additional  amount  of  new  stock,  the  stockholders  must  first 
be  given  the  right  to  purchase  an  amount  proportionate  to  the 
number  of  shares  held  by  them  in  the  company  at  the  time  the 
new  stock  is  issued  before  the  same  can  be  placed  upon  the  mar- 
ket. This  right  is  given  to  the  stockholder  in  order  that  he  may 
preserve  his  voice  in  the  management  of  the  company's  affairs. 
If  the  stockholder  refuses  to  accept  and  pay  for  his  part  of  a 
new  issue  of  shares  within  the  time  limited  by  the  Board  of 
Directors,  his  right  of  preemption  becomes  forfeited. 

Right  to  Ezamine  the  Company's  Books. 

It  is  apparent  that  if  every  shareholder  of  a  large  corpora- 
tion was  given  the  right  to  examine  its  books  at  pleasure  it 
would  be  impossible  to  keep  them  in  a  proper  manner.  Conse- 
quently the  law  in  some  States  holds  that  the  books  of  a  corpora- 
tion may  only  be  examined  at  a  meeting  duly  convened  by  agents 
appointed  by  a  majority  of  the  shareholders.  The  Supreme 
Court  of  Pennsylvania  has  decided  differently,  to  wit:  "Unless 
the  charter  provides  otherwise,  a  shareholder  in  a  trading  corpora- 
tion has  the  right  to  inspect  its  books  and  papers,  for  a  definite 
and  proper  purpose,  at  reasonable  times." 


CORPORATIONS  103 

The  Management  of  Corporations. 

A  corporation  may  do  any  acts  necessary  to  prosecute  its 
legitimate  business  in  the  same  manner  as  an  individual  or  co- 
partnership engaged  in  a  similar  line  of  business.  Thus  it  has  the 
right  to  purchase  and  sell  property,  to  enter  into  contracts,  to 
bring  and  defend  suits  at  law  or  in  equity. 

The  management  of  the  affairs  of  a  corporation  is,  as  we 
have  seen,  delegated  by  a  majority  of  the  shareholders  to  partic- 
ular agents,  usually  a  board  of  directors,  president,  secretary 
and  treasurer,  etc.  A  majority  of  a  corporation  is  a  majority 
of  those  stockholders  present  at  a  regularly  called  meeting,  provid- 
ing a  quorum  of  the  whole  be  present;  and  need  not  necessarily 
be  a  majority  of  all  the  shareholders  of  the  company. 

In  the  election  of  officers  to  manage  the  corporation,  or  in 
meetings  at  which  other  matters  are  to  be  voted  on  by  the  share- 
holders, the  custom  has  become  well  established  to  give  each 
stockholder  one  vote  for  each  share  of  stock  which  he  holds, 
otherwise  one  holding  a  hundred  shares  of  stock  would  have  no 
more  authority  than  a  man  holding  ten  shares,  which  is  con- 
trary to  principles  of  justice.  In  Pennsylvania  cumulative  voting 
is  legal.  It  is  necessary  that  all  the  shareholders  be  duly  noti- 
fied of  a  meeting  before  it  is  held,  in  the  absence  of  which  notice 
no  proper  action  can  be  taken.  The  majority  has  the  right  at  a 
regularly  appointed  meeting  to  make  reasonable  rules  or  regula- 
tions or  by-laws  for  governing  the  corporation,  this  power  of 
making  by-laws  being  given  in  the  charter  of  every  business  cor- 
poration, but  such  by-laws  as  are  enacted  must  not  be  contrary  to 
the  charter  or  the  general  laws  of  the  land. 

Every  shareholder  is  bound  by  the  by-laws  adopted  by  the 
majority  on  behalf  of  the  corporation  under  authority  of  the 
charter.  Consequently  no  agent  of  the  corporation  can  bind  it 
by  any  act  in  violation  of  the  company's  by-laws.  The  principles 
of  the  law  of  agency  are  equally  as  applicable  to  corporations  as 
to  individuals.  The  directors  of  a  corporation,  who  are  agents 
appointed  to  regulate  its  management,  should  be  men  of  practical 
business  experience  and  judgment.  Ordinarily  they  are  required 
to  be  shareholders  in  the  company  and  are  not  entitled  to  com- 
pensation for  their  official  services  as  directors.  But  if  a  director 
is  engaged  to  render  services  outside  of  his  duties  as  director, 
he  is  entitled  to  reasonable  compensation  for  his  services. 

The  Board  of  Directors  has  no  authority  to  wind  up  the  bus- 
iness of  the  corporation  or  sell  any  property  necessary  to  carry  it 
on.    The  directors  are  merely  agents  of  the  company  whose  gen- 


I04  CORPORATIONS 

eral  powers  are  regulated  by  its  charter  and  by-laws.  The  value  of 
the  business  as  a  commercial  speculation  and  the  advisability  of 
carrying  it  on  are  matters  which  concern  the  shareholders  who 
have  embarked  in  the  business  and  not  their  managing  agents. 
The  Board  of  Directors  of  a  corporation  occupy  a  fiduciary  or 
trust  relation  thereto.  Consequently  the  directors  cannot  bind  the 
corporation  by  any  contract  made  with  themselves  personally  or 
by  any  transaction  with  third  parties  in  which  they  have  a  pri- 
vate interest.  The  theory  of  the  law  is  that  a  director  should 
not  be  allowed  to  obtain  any  advantage  to  himself  through  his 
control  over  the  company.  Hence  they  cannot  lawfully  by  any 
arrangement  secure  to  themselves  a  share  in  the  profits  of  any 
transaction  to  which  the  corporation  is  a  party. 

The  rule  which  disqualifies  an  agent  from  representing  his 
principal  in  any  transaction  in  which  his  personal  interests  are  op- 
posed to  those  of  his  principal  restricts  the  directors  of  a  cor- 
poration from  dealing  with  another  corporation  in  which  they 
are  shareholders,  if  their  interest  in  the  latter  company  might  in- 
duce them  to  favor  it  at  the  expense  of  the  corporation  whose 
interests  have  been  intrusted  to  their  care  as  directors. 

Ordinarily  the  directors  of  a  corporation  cannot  act  singly 
but  only  as  a  board  at  a  meeting  regularly  called  at  which  a 
quorum  is  present  and  in  which  a  majority  vote  on  all  questions 
is  necessary  to  control  or  bind  the  corporation. 

Corporations,  we  have  seen,  are  liable  on  all  contracts  entered 
into  by  their  authorized  agents  if  within  the  scope  of  their  author- 
ity. Similarly  a  corporation  is  bound  by  the  torts  of  its  agents 
provided  they  are  done  in  the  course  of  employment  and  further 
in  discharge  of  a  duty  owed  the  employer.  The  only  exception 
to  the  rule  that  a  corporation  is  liable  for  the  torts  of  its  agents 
is  presented  in  the  case  of  charitable  corporations.  A  hospital, 
for  example,  would  not  be  responsible  for  the  wrongful  acts  of  its 
servants,  this  rule  being  based  upon  principles  of  public  policy. 
Thus  a  corporation  is  liable  for  a  trespass  upon  the  lands  of  an- 
other or  for  an  assault  committed  or  nuisance  maintained  by  any 
officer  or  agent  of  the  corporation  in  the  discharge  of  his  usual 
employment. 

A  corporation  is  also  liable  for  the  negligence  of  any  of  its 
agents.  A  corporation  is  also  liable  for  failure  to  provide  its 
employees  with  a  safe  place  within  which  to  work  and  safe  tools 
with  which  to  work  as  well  as  proper  instructions  regarding  work 
of  a  dangerous  character. 

It  is  obvious  that  a  corporation  cannot  commit  a  crime. 


CORPORATIONS  105 

However,  it  is  responsible  for  the  criminal  acts  of  its  agents  to 
the  same  extent  that  an  individual  is  bound  by  the  criminal  acts  of 
his  agent.  Thus  quite  recently  the  Standard  Oil  Company  was 
held  criminally  liable  for  the  acts  of  its  agents  in  accepting  re- 
bates from  the  Chicago  and  Alton  Railroad  Company  contrary  to 
the  terms  of  the  Elkins  Act. 

Ultra  Vires  Acts. 

In  view  of  the  fact  that  the  State  exercises  more  or  less  con- 
trol over  all  corporations  chartered  by  it,  if  a  corporation  assumes 
powers  not  specifically  granted  to  it,  the  State,  through  its  At- 
torney General,  may  take  action  to  forfeit  its  charter  on  the 
ground  that  such  acts  are  ultra  vires  and  void. 

At  the  beginning  of  this  subject  it  was  pointed  out  that  the 
creation  of  a  corporation  is  in  the  nature  of  a  contract  between 
the  State  and  the  incorporators.  Unless  the  right  to  revoke  a 
charter  is  expressly  reserved  by  the  State  in  granting  it,  the  State 
would  have  no  right  of  revocation,  the  Constitution  of  the  United 
States  providing  that  the  obligation  of  a  contract  shall  not  be 
impaired.  Where  the  right  is  reserved,  a  revocation  of  the  char- 
ter of  a  private  corporation  is  not  a  violation  of  the  constitu- 
tional provision  above  set  forth.  A  corporation  may,  therefore, 
be  dissolved  by  a  forfeiture  or  revocation  of  its  charter,  the 
causes  justifying  a  forfeiture  being  either  a  misuse  or  nonuse  of 
its  franchise  or  a  substantial  departure  from  the  purposes  for 
which  it  was  created. 

Corporations  may  further  be  dissolved  by  expiration  of  time, 
i.  e.,  when  the  time  is  limited  in  the  charter  during  which  a  cor- 
poration shall  exist,  the  corporation  ceases  to  exist  upon  the  ex- 
piration of  the  specified  time.  A  corporation  may  also  be  dis- 
solved by  a  voluntary  surrender  of  its  charter  and  acceptance  of 
said  surrender  by  the  State. 

The  dissolution  of  a  corporation  has  no  more  effect  upon  its 
debts  and  liabilities  than  the  death  of  a  private  person  has  upon 
obligations  contracted  by  him.  When  a  corporation  has  been  dis- 
solved by  any  legal  method,  the  creditors  or  stockholders  may  ask 
for  the  appointment  of  a  receiver,  who  shall  take  charge  of  all  the 
real  and  personal  property  owned  by  the  late  corporation  and  hold 
it  as  a  trust  fund  for  the  payment  of  all  debts  contracted  by  it. 
If  any  surplus  remains  after  all  legal  claims  have  been  paid,  it 
will  be  divided  among  the  stockholders  in  proportion  to  the  num- 
ber of  shares  held  by  them. 


io6  CORPORATIONS 

In  conclusion,  the  superior  advantages  of  a  corporation  over 
every  form  of  business  association  cannot  be  emphasized  too 
strongly.  In  the  first  place,  a  corporation,  unlike  a  partnership, 
may  enjoy  perpetual  existence,  whereas  a  partnership  becomes 
dissolved  by  the  death  or  retirement  of  any  member.  In  the  sec- 
ond place,  individuals  who  invest  their  capital  in  a  corporation 
risk  nothing  beyond  the  actual  amount  which  they  pay  into  the 
coffers  of  the  corporation,  and  if,  perchance,  the  business  of  the 
corporation  becomes  a  disastrous  failure,  a  stockholder  only  loses 
what  he  has  paid  in  and  no  creditors  can  come  upon  his  property 
for  the  payment  of  their  claims.  It  is  for  this  reason  particularly 
that  the  enterprises,  large  and  small,  who  prefer  to  incorporate 
rather  than  risk  the  fortunes  of  their  membership,  are  mul- 
tiplying every  year.  In  the  third  place,  a  business  can  be  con- 
ducted much  more  conveniently  and  expeditiously  in  the  form 
of  a  corporation  than  otherwise,  in  view  of  the  fact  that  the 
powers  of  the  agents  authorized  to  transact  its  business  are 
definitely  prescribed  by  the  charter  and  by-laws  of  the 
corporation. 

The  cost  of  incorporating  varies  in  the  different  States,  but 
considering  the  innumerable  advantages  appertaining  to  a  cor- 
poration, a  charter  may  be  procured  for  a  very  nominal  amount. 


PROMISSORY  NOTE 

i  Philadelphia,  191 

after  dale  promise  to  pay  to 

the  order  of 

Dollars 
at 

Without  defalcalion,  for  value  received. 
No  Due 


COLLATERAL  NOTE 

S  19 

Promise  to  pay  to  the  order  of 

Dollars, 

without  defalcation,  for  value  received  and  have 

'deposited  herewith 


as  collateral  security  for  the  prompt  payment  at  maturity,  of  this 
and  any  other  liabilities  of  the  undersigned,  due  or  to  become  due,  or 
that  may  be  hereafter  contracted  with  the  holder  of  this  note;  which 
collalerals,  either  the  whole  or  any  part  thereof  hereby 

authorize  and  empower  the  holder  of  this  Note  should  the  same  or 
any  other  liabilit>j  of  the  undersigned  as  above  described,  be  not 
paid  at  malurity,  to  sell  at  public  or  private  sale  at  any  titne  or  times 
thereafter,  without  furtlier  notice  and  with  the  right  of  becoming 
the  purclMser  at  such  sale  or  sales,  of  the  whole  or  any  part  of  said 
collaterals,  freed  and  discharged  of  any  equity  of  redemption,  and  to 
transfer,  assign  and  deliver  the  same;  and  after  deducting  all  legal 
and  other  costs,  attorney  fees  and  expenses  of  collection,  sale  and 
delivery,  to  apply  the  residue  of  the  proceeds  of  such  sale  or  sales,  to 
pay  any,  either  or  all  of  said  liabilities  as  said  holder  shall  deem  proper, 
returning  the  overplus  if  any,  to  and  should  any  deficiency 

occur  further  promise  and  agree  to  pay  the 

holder  hereof  on  demand. 

Payable  at 
Due 


JUDGMENT  NOTE 

$  19 

attet  date,  for  balue  teceibeb.  pcpmi0e  to 

^ap  or  a00ign0. 

Dollars, 

with  interest,  and  without  defalcation  or  stay  of  execution.    And 

do  hereby  authorize  any  Attorney  • 
to  appear  for  and  confess  judgment  for  the  above  sum,  with 

interest  and  costs  of  suit,  a  release  of  all  errors,  and  waiver  of  all  rights 
to  inquisition  and  appeal,  and  to  the  benefit  of  all  laws  exempting  real 
or  personal  property  from  levy  and  sale. 


BILL  OF   EXCHANGE 

CEjcSangc  for 

of  Exchange  (Second  of  same  tenor  and  date  unpaid) 
Pay  to  the  Order  of 

for  Value  received  and  place  the  same  to  account  of 
To 

Bo. 


19 
of  this  ifirjst 


NEGOTIABLE  INSTRUMENTS. 

Characteristics — Essential  Elements — Various  Kinds  Defined — 
Indorsements — Rights  of  the  Holder — Liabilities  of  the  Parties 
Thereto — Defenses — Conflict  of  Laws. 

IT  was  pointed  out  in  our  discussion  of  the  subject  of  con- 
tracts that  negotiable  instruments  formed  certain  exceptions 

to  the  law  applicable  to  contracts  in  general.  We  will  now 
enter  upon  a  more  careful  inquiry  into  the  law  governing  this 
particular  class  of  contracts,  which  was  derived  from  a  branch  of 
the  law  usually  referred  to  as  the  "Custom  of  Merchants." 

When  international  commerce  developed  and  expanded,  it 
became  imperative  that  laws  should  be  formed,  common  to  all 
countries,  governing  transactions  between  merchants  residing  in 
various  sections  of  the  world ;  otherwise  disputes  would  continu- 
ally arise  between  a  merchant  of  one  country  trading  with  a  mer- 
chant of  another  as  to  what  law  should  govern  the  transaction 
between  them.  To  promote  commerce  by  overcoming  these  diffi- 
culties the  rules  comprised  in  the  ^'Custom  of  Merchants"  were 
evolved,  among  the  most  important  of  which  are  the  laws  gov- 
erning the  purchase  and  sale  of  negotiable  paper.  The  laws  af- 
fecting merchant  and  merchant  in  every  country  in  the  world, 
having  been  founded  on  the  system  of  rules  known  as  the  "Cus- 
tom of  Merchants,"  are  practically  uniform.  Consequently  busi- 
ness men  in  dealing  with  each  other  in  different  parts  of  the 
world  transfer  values  almost  exclusively  through  the  medium  of 
bills  of  exchange  and  promissory  notes. 

There  are  various  kinds  of  negotiable  instruments,  the  most 
common  of  which  are  promissory  notes  and  bills  of  exchange, 
which  we  will  first  consider.  But  at  the  outset  let  us  clearly  un- 
derstand what  is  a  negotiable  instrument. 

"A  negotiable  instrument  is  that  medium  for  the  exchange 
of  values  made  by  an  individual  on  the  strength  of  his  ability 
to  meet  the  obligation  thus  created,  and  accepted  by  others  on 
their  confidence  in  the  financial  credit  of  such  maker,  and  which 
is  as  good  in  the  hands  of  third  persons  as  in  the  hands  of  the 
original  parties." 

A  negotiable  instrument  is  in  reality  but  the  transfer  of  that 
mutual  confidence  between  man  and  man  upon  which  the  greater 
volume  of  business  in  the  commercial  world  must  of  necessity  be 


io8  NEGOTIABLE  INSTRUMENTS 

based,  and  its  transfer  from  hand  to  hand  may  be  accomplished 
with  the  same  legal  effect  as  the  transfer  of  money. 

Characteristics  of  a  Negotiable  Instrument. 

A  negotiable  instrument  is  in  form  and  substance  a  contract 
in  writing  and  possesses  four  characteristics — 

1.  It  may  be  transferred  by  the  original  holder  or  owner 
and  the  transferee  in  his  own  name  can  sue  the  maker  or  subse- 
quent promissor  for  the  non-fulfillment  of  his  promise. 

2.  If  a  negotiable  instrument  is  stolen  and  transferred  by 
the  thief  to  another  for  a  valuable  consideration  in  the  usual 
course  of  business  before  maturity,  a  perfect  title  would  be  ac- 
quired by  the  purchaser,  which  would  not  be  the  case  if  a  horse 
or  any  other  species  of  property  were  stolen  and  resold. 

3.  The  holder  of  a  negotiable  instrument  is  entitled  to  its 
full  face  value,  and  such  defense  as  the  maker  of  the  instrument 
may  have  against  the  payee  would  not  be  recognized  against  a 
subsequent  holder  who  acquired  the  instrument  in  the  usual  course 
of  business  and  before  maturity. 

4.  A  negotiable  instrument  imports  a  consideration  the 
same  as  a  sealed  instrument.  This  quality  was  first  possessed 
by  bills  of  exchange,  but  later  was  extended  by  statute  to  include 
promissory  notes.  The  fact  that  no  consideration  was  given  for 
the  instrument  may  be  proved  by  the  immediate  parties,  but 
not  against  subsequent  parties. 

Essential  Elements  of  a  Negotiable  Instrument. 

Under  the  law  governing  negotiable  instrimients  in  Penn- 
sylvania, which  has  been  reduced  to  a  code,  as  in  twenty-three 
other  States  in  the  Union,  a  negotiable  instrument  to  be  valid 
must  conform  to  the  following  requirements: 

1.  It  must  be  in  writing,  and  signed  by  the  maker  or 
drawer. 

2.  It  must  contain  an  unconditional  promise  or  order  to 
pay  a  certain  sum  in  money. 

3.  It  must  be  payable  on  demand  or  at  a  fixed  or  deter- 
minable future  time. 

4.  It  must  be  payable  to  order  or  to  bearer, 

5.  Where  the  instrument  is  addressed  to  a  drawee,  he  must 
be  named  or  otherwise  indicated  with  reasonable  certainty. 

6.  The  parties  to  a  negotiable  instrument  must  be  compe- 
tent to  enter  into  a  contract. 


NEGOTIABLE  INSTRUMENTS  109 

7.  A  negotiable  instrument  must  be  founded  on  a  valid 
consideration. 

8.  Actual  delivery  must  be  made  to  give  effect  to  the  in- 
strument. 

Kinds  of  Negotiable  Instruments. 

The  words  most  frequently  employed  to  indicate  the  negotia- 
bility of  an  instrument  are  the  words  "to  order,"  "or  bearer,"  but 
any  words  from  which  it  can  be  inferred  that  the  maker  intended 
the  instrument  to  be  negotiable  will  have  that  effect,  Q)nse- 
quently  there  are  several  kinds  of  negotiable  instruments,  the 
best  known  in  the  commercial  world  being  promissory  notes,  bills 
of  exchange  and  bank  checks.  Warehouse  receipts,  bills  of  lading, 
coupon  bonds  and  clearing  house  due  bills  are  less  common  forms 
of  negotiable  paper  which  we  will  consider  later. 

Definition  of  a  Promissory  Note. 

A  promissory  note  is  an  unconditional  promise  in  writing  to 
pay  a  certain  sum  of  money  to  the  order  of  some  other  person 
or  persons  at  a  definite  time.  The  following  is  a  usual  form  of 
promissory  note: 

$5,000.00.  Philadelphia,  August  i,  191 1. 

Sixty  days  after  date  I  promise  to  pay  to  the  order  of  John 
Doe  Five  Thousand  Dollars,  at  the  West  End  Trust  Company 
of  Philadelphia,  for  value  received,  with  interest. 

Richard  Roe. 

Richard  Roe,  the  party  promising  to  pay  the  money,  is  called 
the  "maker"  of  the  note ;  John  Doe,  the  party  to  whom  the  money 
is  to  be  paid,  is  called  the  "payee." 

If  the  above  note  was  made  payable  to  John  Doe  or  bearer, 
it  could  be  transferred  by  delivery,  but  being  made  payable  "to 
order,"  it  can  only  be  transferred  by  indorsement,  which  is  done 
by  writing  the  payee's  name  across  the  back  of  the  note.  The 
party  who  indorses  the  note  is  called  the  "indorser"  and  the  party 
who  receives  the  same  is  called  the  "indorsee." 

Definition  of  a  Bill  of  Exchange. 

The  Negotiable  Instrument  Act  of  Pennsylvania  defines  a 
bill  of  exchange  as  follows:  "A  bill  of  exchange  is  an  uncon- 
ditional order  in  writing,  addressed  by  one  person  to  another; 
signed  by  the  person  giving  it,  requiring  the  person  to  whom  it 


no  NEGOTIABLE  INSTRUMENTS 

is  addressed  to  pay,  on  demand  or  at  a  fixed  or  determinable 
future  time,  a  sum  certain  in  money  to  order  or  to  bearer." 
A  usual  form  of  a  bill  of  exchange  is  as  follows : 

$5,000.00.  Philadelphia,  August  i,  191 1. 

At  sight  pay  to  John  Doe  or  order  Five  Thousand  Dollars 
for  value  received,  and  place  the  same  to  the  account  of 

Richard  Roe. 
To  J.  J.  Jones  &  Co., 

Boston,  Mass. 

In  every  bill  of  exchange  there  are  three  original  parties. 
The  party  giving  the  bill  is  called  the  drawer  (Richard  Roe),  the 
party  to  be  paid  the  money  is  called  the  payee  (John  Doe),  and 
the  party  on  whom  the  order  is  given  is  called  the  drawee,  who 
upon  accepting  the  bill  is  called  the  acceptor  (J.  J.  Jones  &   Co.). 

Bills  of  exchange  are  of  two  kinds,  foreign  and  inland.  A 
foreign  bill  of  exchange  is  one  that  is  drawn  in  one  country  and 
payable  in  another;  an  inland  bill  of  exchange  is  one  that  is 
drawn  and  payable  in  the  same  country.  The  several  States  of 
the  United  States  are  regarded  as  foreign  to  one  another  in  draw- 
ing bills.  Thus  if  the  drawer  and  drawee  are  citizens  of  Pennsyl- 
vania, and  the  bill  is  payable  in  New  York,  it  is  a  foreign  bill  of 
exchange.  If,  however,  the  drawer  and  payee  live  in  Pennsylva- 
nia, and  the  drawee  in  New  York,  it  is  an  inland  bill.  Care  should 
be  exercised  in  disclosing  the  States  in  which  the  parties  live,  as 
the  Courts  cannot  infer  their  residence  from  the  place  mentioned 
on  the  instrument. 

A  check  is  in  reality  an  inland  bill  of  exchange,  and  has 
been  judicially  defined  as  follows : 

"A  check  is  a  written  order  or  request  addressed  to  a  third 
person  having  funds  in  hand,  requesting  him  to  pay  on  present- 
ment to  a  person  named,  or  to  bearer,  a  given  sum  of  money." 

In  our  definition  of  a  promissory  note  we  observed  that  it 
must  contain  an  unconditional  promise  to  pay.  Now,  a  promise 
to  pay  is  unconditional  within  the  meaning  of  the  law  although 
coupled  with  an  indication  of  a  particular  fund  out  of  which  re- 
imbursement is  to  be  made,  or  a  particular  account  to  be  debited 
with  the  amount,  or  a  statement  of  the  transaction  giving  rise  to 
the  instrument.  But  an  order  or  promise  to  pay  out  of  a  partic- 
ular fund  is  conditional.  It  must  be  further  borne  in  mind  that 
the  words  constituting  a  promise  to  pay  must  be  distinguished 
from  a  request  or  a  mere  recognition  of  an  existing  debt.  For 
example,  a  document  containing  the  words  "I.  O.  U.  $50,"  would 


NEGOTIABLE  INSTRUMENTS  iii 

not  constitute  a  promise,  being  only  an  admittance  of  a  debt.  If 
the  paper  had  read  "I.  O.  U.  $50  to  be  paid  on  demand,"  these 
words  would  have  constituted  a  definite  promise,  and  the  paper 
would  be  a  promissory  note. 

An  instrument  reading:  "I  promise  to  pay  to  John  Doe  or 
order  Five  Hundred  Dollars  out  of  the  income  of  my  farm, 
Richard  Roe,"  would  not  be  a  promissory  note,  and  could  not 
properly  be  negotiated,  because  the  promise  is  conditional  upon 
an  income  arising  out  of  Richard  Roe's  farm,  and,  as  we  pointed 
out  above,  a  promissory  note  must  contain  an  unconditional 
promise. 

The  promise  contained  in  a  promissory  note  must  be  single. 
In  an  ordinary  contract  a  man  may  bind  himself  to  the  per- 
formance of  several  promises,  but  such  an  instrument  is  not 
negotiable.  An  instrument  in  which  Richard  Roe  promises  to  pay 
John  Doe  one  hundred  dollars,  and  also  to  deliver  to  John  Doe 
certain  chattels  in  his  possession,  was  decided  not  to  be  a  promis- 
sory note,  for  the  reason  that  it  contained  a  promise  not  only  to 
pay  a  sum  of  money,  but  also  to  do  something  else — to  wit, 
deliver  certain  chattels,  which  latter  promise  destroyed  the  nego- 
tiability of  the  paper. 

Another  element  necessary  to  constitute  a  valid  promissory 
note  is  that  the  promise  must  be  for  the  payment  of  money,  by 
which  is  meant  the  medium  of  exchange  which  is  legal  tender 
at  the  place  where  the  note  is  to  be  paid. 

Furthermore,  there  must  be  no  uncertainty  as  to  the  obliga- 
tion of  the  maker.  In  other  words,  the  money  promised  to  be 
paid  must  be  a  sum  certain,  a  definite  amount.  This  is  to  enable 
any  holder  of  the  note  to  determine  its  value  immediately.  The 
time  when  the  money  is  payable  must  also  be  set  forth  definitely. 
An  instrument  is  payable  at  a  determinable  future  time,  within 
the  meaning  of  the  law,  although  expressed  to  be  payable  (i) 
at  a  fixed  period  after  date  or  sight,  or  (2)  on  or  before  a  fixed 
determinable  future  time  specified  therein;  or  (3)  on  or  at  a 
fixed  period  after  the  occurrence  of  a  specified  event,  which  is 
certain  to  happen  though  the  time  of  happening  be  uncertain. 

Consideration. 

The  presence  of  a  consideration  is  essential  to  the  validity 
of  every  contract  set  forth  in  a  bill  or  note.  There  is  a  prima  facie 
presumption  that  every  negotiable  instrument  has  been  issued  for 
a  valuable  consideration  and  every  person  whose  signature 
appears  thereon  to  have  become  a  party  thereto  for  value. 


112  NEGOTIABLE  INSTRUMENTS 

The  absence  of  consideration  may  be  set  up  as  a  defense  to 
the  payment  of  a  note  as  between  the  original  parties,  but  not 
against  a  subsequent  holder  for  value  in  due  course.  The 
absence  of  consideration  to  an  indorser  of  a  note  does  not  affect 
its  negotiability  or  validity. 

We  referred  above  to  the  fact  that  a  negotiable  instrument 
must  be  payable  on  demand  or  at  a  fixed  or  determinable  future 
time.  Such  an  instrument  is  payable  on  demand  (i)  where  it 
is  expressed  to  be  payable  on  demand,  or  at  sight,  or  on  presenta- 
tion ;  or  (2)  in  which  no  time  for  payment  is  expressed.  The  sum 
payable  is  a  sum  certain  within  the  meaning  of  the  law,  although 
it  is  made  payable  with  interest,  by  stated  installments  with  a 
provision  that  upon  default  in  payment  of  any  installment  or  of 
interest,  the  whole  shall  become  due,  or  with  exchange,  whether 
at  a  fixed  rate  or  at  the  current  rate,  or  with  costs  of  collection 
or  an  attorney's  fee,  in  case  payment  shall  not  be  made  at 
maturity. 

Although  an  instrimient  which  contains  an  order  or  promise 
to  do  any  act  in  addition  to  the  payment  of  money,  is  not  nego- 
tiable, the  negotiable  character  of  an  instrument  is  not  affected 
by  a  provision  which — 

(i)  Authorizes  the  sale  of  collateral  securities  in  case  the 
instrument  be  not  paid  at  maturity;  or 

(2)  Authorizes  a  confession  of  judgment  if  the  instriunent 
be  not  paid  at  maturity ;  or 

(3)  Waives  the  benefit  of  any  law  intended  for  the  advan- 
tage or  protection  of  the  obligor;  or 

(4)  Gives  the  holder  an  election  to  require  something  to  be 
done  in  lieu  of  payment  of  money. 

It  is  not  necessary  that  a  bill  of  exchange  or  promissory  note 
be  dated  to  render  it  negotiable.  It  may  be  issued  undated, 
antedated  or  post-dated.  If  the  instrument  is  undated  any  holder 
may  fill  in  the  true  date  of  issue  or  acceptance,  but,  although  a 
holder  may  fill  up  a  blank  date,  he  cannot  alter  the  date  on  an 
instrument  without  subjecting  himself  to  the  liability  of  crim- 
inal prosecution  for  forgery,  as  the  date  is  a  material  part  of  a 
bill  or  note. 

A  negotiable  instrument  is  payable  to  order  when  it  is  drawn 
payable  to  the  order  of  a  specified  person,  or  to  him  or  his  order. 
It  may  be  drawn  payable  to  the  order  of  (i)  a  payee  who  is  not 
maker,  drawer  or  drawee;  or  (2)  the  drawer  or  maker;  or  (3) 
the  drawee;  or  (4)  two  or  more  payees  jointly;  or  (5)  one  or 


NEGOTIABLE  INSTRUMENTS  113 

more  of  several  payees;  or  (6)  the  holder  of  an  office  for  the 
time  being. 

Regardless  of  whose  order  the  instrument  is  made  payable 
to,  the  payee  must  be  named  or  otherwise  indicated  therein  with 
reasonable  certainty. 

A  negotiable  instrument  payable  to  Adam  Smith  or  order 
can  only  be  transferred  by  Adam  Smith  writing  his  name  on  the 
back  of  the  paper,  Adam  Smith  thus  becoming  responsible  as  in- 
dorser  for  the  payment  of  the  amount  ordered  to  be  paid  the 
holder.  If  a  note  payable  "to-order"  be  indorsed  "to  bearer"  it 
could  thereafter  be  transferred  by  simple  delivery, 

A  negotiable  instrument  is  payable  to  bearer  ( i )  when  it  is 
expressed  to  be  so  payable;  or  (2)  when  it  is  payable  to  a  person 
named  therein  or  bearer;  or  (3)  when  it  is  payable  to  the  order 
of  a  fictitious  or  non-existing  person,  and  such  fact  was  known 
to  the  party  making  it  so  payable ;  or  (4)  when  the  name  of  the 
payee  does  not  purport  to  be  the  name  of  any  person;  or  (5) 
when  the  last  indorsement  is  an  indorsement  in  blank.  When 
an  instrument  is  payable  to  bearer  it  is  transferable  by 
delivery. 

The  sixteenth  section  of  the  act  regelating  negotiable  in- 
struments in  Pennsylvania  provides  that  every  contract  on  a  nego- 
tiable instrument  is  incomplete  and  revocable  until  delivery  of 
the  instrument  for  the  purpose  of  giving  effect  thereto,  delivery 
meaning  the  transfer  of  possession  from  one  person  to  another, 
a  negotiable  instrument  taking  effect  from  the  time  of  delivery, 
rather  than  the  date  it  bears.  Delivery,  to  be  effectual,  must  be 
made  by  or  with  the  authority  of  the  maker,  drawer,  acceptor  or 
indorser,  as  the  case  may  be. 

A  negotiable  instrument  made  and  delivered  on  the  Sabbath 
is  void.  If,  however,  the  bill  or  note  is  merely  dated  on  Sunday, 
but  is  not  delivered  until  some  other  day,  it  is  valid. 

Competency  of  Parties. 

A  negotiable  instrument  being  the  result  of  a  contract,  the 
parties  thereto  must  have  legal  capacity  to  enforce  and  execute 
their  promises  or  undertakings,  otherwise  the  instrument  is  in- 
valid. Thus  a  minor,  being  unable  to  enter  into  a  legal  contract, 
cannot  make  or  indorse  a  bill  of  exchange  or  promissory  note. 
Inasmuch,  however,  as  a  minor  is  bound  to  pay  for  his  neces- 
saries, a  bill  or  note  given  by  a  minor  in  payment  of  necessaries 
is  valid. 

The  Supreme  Court  of  Pennsylvania  in  applying  the  various 


114  NEGOTIABLE  INSTRUMENTS 

statutes  affecting  married  women,  has  held  that  a  married  woman 
has  the  right  to  contract  and  give  a  note  for  necessaries,  land, 
household  furniture,  horses,  or  for  the  improvement  of  her  real 
estate,  or  for  instruments  used  by  her  husband  upon  her  farm, 
or  to  pay  his  debts.  A  married  woman  may  also  assign  her  per- 
sonal property  or  mortgage  her  real  estate  as  security  for  her 
husband's  debts,  or  give  a  note  in  payment  of  an  insurance  policy 
taken  out  on  his  life  for  her  benefit,  or  in  payment  of  any  debt 
contracted  by  her  husband  for  her  benefit. 

A  married  woman  cannot  become  an  accommodation  in- 
dorser,  guarantor  or  surety  for  another.  An  ante-nuptial  contract 
made  by  a  married  woman  is  not  within  the  above  prohibition  and 
may  be  revived  after  marriage. 

A  bill  or  note  given  by  a  lunatic  or  habitual  drunkard,  so 
declared  by  inquisition,  is  void,  and  an  inquiry  can  be  made  into 
the  consideration  of  negotiable  paper  made  by  a  lunatic,  even 
when  purchased  by  a  third  party  in  good  faith.  The  defense  of 
drunkenness,  however,  cannot  be  set  up  against  the  holder  of  a 
note  for  value  who  has  taken  it  in  good  faith,  although  the  de- 
fense would  be  good  as  between  the  original  parties. 

The  distinction  between  a  promissory  note  and  a  bill  of 
exchange  resides  in  the  fact  that  the  former  is  an  individual  prom- 
ise to  pay  a  certain  sum  of  money,  whereas  the  latter  is  an  order 
to  some  third  person  to  pay  another  a  sum  of  money. 

The  language  of  a  bill  or  note  is  sometimes  ambiguous,  in 
which  event  the  following  rules  of  construction  are  applicable: 

1.  If  there  is  a  discrepancy  between  the  amount  payable 
as  expressed  in  words  and  figures,  the  amount  indicated  by  the 
words  is  the  amount  payable. 

2.  If  payment  of  interest  is  provided  for,  but  the  date  from 
which  interest  is  to  run  is  not  specified,  it  runs  from  the  date 
of  the  instrument,  and  if  undated  from  the  issue  of  the  instru- 
ment, any  instrument  undated  being  regarded  as  dated  from  the 
time  it  issued. 

3.  In  case  there  is  any  disparity  between  the  written  and 
printed  terms  of  an  instrument  the  written  provisions  will  pre- 
vail. 

4.  Where  the  instrument  is  so  ambiguous  as  to  give  rise 
to  doubt  as  to  whether  or  not  it  is  a  bill  or  note,  it  is  optional 
with  the  holder  to  treat  it  as  either. 

5.  If  a  signature  is  so  placed  upon  an  instrument  that  it 
is  doubtful  in  what  capacity  a  party  intended  signing,  he  is  to 
be  regarded  as  an  indorser. 


NEGOTIABLE  INSTRUMENTS  115 

6.  If  an  instrument  signed  by  two  or  more  persons  contains 
the  words  "I  promise  to  pay"  the  holder  can  sue  either  signer 
alone  or  all  jointly,  they  being  jointly  and  severally  liable. 

Bearing  in  mind  that  negotiable  paper  circulates  from  one 
to  another  with  practically  the  same  freedom  as  money,  let  us  in- 
quire into  the  manner  in  which  bills  and  notes  may  pass  from  one 
to  another.  Now,  money  changes  ownership  by  mere  delivery, 
which  means  a  transfer  of  possession,  either  actual  or  construc- 
tive, from  one  person  to  another.  Something  further  is  re- 
quired, however,  to  transfer  properly  possession  of  a  bill  of 
exchange,  as  a  consideration  of  the  following  will  indicate : 

Williamsport,  Pa.,  Aug.  15,  191 1. 
$500.00. 

At  sixty  days'  sight,  pay  to  the  order  of  Richard  Roe  Five 
Hundred  Dollars. 

For  value  received.  John  Doe. 

To  John  Smith  &  Co., 
Philadelphia,  Pa. 

Richard  Roe  is  the  party  entitled  to  receive  the  money  as 
appears  from  the  face  of  the  instrument,  but  suppose  Richard 
Roe  desires  to  pay  a  debt  of  $500  to  Owen  Jenkins ;  he  cannot  do 
so  by  merely  delivering  the  bill  to  him,  because  if  Owen  Jenkins 
presented  the  same  to  John  Smith  &  Co.  he  could  not  get  the 
money  for  the  reason  that  John  Smith  &  Co.  are  not  ordered 
to  pay  $500  to  Owen  Jenkins,  but  to  Richard  Roe.  This  diffi- 
culty is  overcome  by  Richard  Roe  writing  on  the  back  of  the 
bill,  "Pay  the  within  to  Owen  Jenkins  or  order"  and  signing  his 
name.  If  Richard  Roe  merely  signs  his  name  on  the  back  of 
the  instrument  he  is  said  to  indorse  the  same  in  blank,  in  which 
event  the  bill  becomes  payable  to  bearer.  By  signing  his  name 
on  the  back  of  the  instrument  Richard  Roe  becomes  an  indorser 
thereof.  Owen  Jenkins  is  known  as  the  indorsee,  and  if  he 
desires  to  transfer  the  bill  to  another  he  may  do  so  by  indorsing 
the  same  himself,  and  thus  the  instrument  may  pass  from  hand 
to  hand  indefinitely. 

An  Accommodation  Indorser. 

A  party  who  places  his  name  on  the  back  of  a  negotiable  in- 
strument who  has  not  received  value  for  so  doing,  but  who  does 
so  to  g^ve  credit  to  the  maker,  is  known  as  an  accommodation  in- 
dorser. Let  us  assume  that  a  promissory  note  is  executed  as  fol- 
lows : 


ii6  NEGOTIABLE  INSTRUMENTS 

Three  months  after  date,  I  promise  to  pay  to  the  order  of 
Richard  Roe  One  Hundred  Dollars. 

John  Doe. 

Richard  Roe  desires  to  raise  funds  by  negotiating  the  note 
and  offers  it  to  Owen  Jenkins,  who,  distrusting  the  credit  of 
both  Richard  Roe  and  John  Doe,  refuses  to  buy  it  unless  a 
financially  responsible  party  will  place  his  name  on  the  back  of 
the  note,  John  Smith,  for  the  purpose,  of  giving  credit  to  the 
note,  indorses  the  same,  John  Smith  in  this  case  is  an  accommo- 
dation indorser,  regarding  whom  the  twenty-ninth  section  of  the 
Negotiable  Instrument  Act  of  Pennsylvania  provides  as  follows : 

An  accommodation  party  is  one  who  has  signed  the  instru- 
ment as  maker,  drawer,  acceptor  or  indorser,  without  receiving 
value  therefor,  and  for  the  purpose  of  lending  his  name  to  some 
other  person.  Such  a  person  is  liable  on  the  instrument  to  a  holder 
for  value,  notwithstanding  such  holder  at  the  time  of  taking  the 
instrument  knew  him  to  be  only  an  accommodation  party. 

The  indorsement  of  a  promissory  note  or  bill  of  exchange, 
whether  it  be  regular  or  anomalous,  must  be  written  on  the  instru- 
ment itself  or  upon  paper  attached  thereto.  Such  an  indorse- 
ment must  be  of  the  whole  instrument;  an  indorsement  purport- 
ing to  transfer  to  the  indorsee  a  part  only  of  the  amount  payable, 
or  to  transfer  the  instrument  to  two  or  more  indorsees  severally, 
does  not  constitute  a  proper  negotiation  of  the  instrument.  How- 
ever, if  the  instrument  has  been  paid  in  part,  it  may  be  indorsed 
as  to  the  residue.  An  indorsement  may  be  either  special  or  in 
blank,  and  it  may  also  be  either  restrictive  or  qualified  or  condi- 
tional. 

A  special  indorsement  specifies  the  person  to  whom  or  to 
whose  order  the  instrument  is  payable  and  in  order  to  further 
negotiate  the  instrument  it  is  necessary  that  such  indorsee  place 
his  indorsement  thereon.  An  indorsement  in  blank,  as  previously 
noted,  specifies  no  indorsee,  being  payable  to  bearer  and  is  nego- 
tiated by  delivery.  A  blank  indorsement  may  be  converted  by 
the  holder  into  a  special  indorsement  by  writing  above  the  sig- 
nature of  an  indorser  any  contract  consistent  with  the  character 
of  the  indorsement. 

An  indorsement  is  restrictive  which  prohibits  the  further 
negotiation  of  the  instrument  or  which  constitutes  the  indorsee 
the  agent  of  the  indorser,  or  which  vests  the  title  in  the  indorsee 
in  trust  for  some  other  person.  Such  a  restrictive  indorsement 
confers  the  right  upon  the  indorsee  to  receive  payment  of  the  in- 


NEGOTIABLE  INSTRUMENTS  117 

stniment,  to  bring  any  action  that  the  indorser  could  bring  thereon, 
and  to  transfer  his  riglits  as  such  indorsee  where  the  form  of  the 
indorsement  authorizes  him  to  do  so.  However,  all  subsequent 
indorsees  acquire  only  the  title  which  the  first  indorsee  had  under 
the  restrictive  indorsement. 

A  qualified  indorsement  is  one  in  which  the  indorser  is 
but  an  assignor  of  the  title  of  the  instrument,  and  is  made  by 
adding  to  the  indorser's  signature  the  words  "without  recourse," 
or  any  similar  words.  Such  an  indorsement  does  not  alter  the  ne- 
gotiable character  of  the  instrument,  but  operates  as  a  protec- 
tion to  the  indorser. 

Where  an  instrument  is  payable  to  the  order  of  two  or  more 
payees  or  indorsees,  who  are  not  partners,  they  must  all  indorse 
unless  the  one  indorsing  has  authority  to  indorse  for  the  others. 
It  is  well  settled  that  the  signature  of  any  party  to  a  negotiable 
instrument  may  be  made  by  a  duly  authorized  agent,  and  no 
particular  form  of  appointment  is  necessary  for  this  purpose, 
as  the  authority  of  an  agent  may  be  established  as  in  other  cases 
of  agency. 

The  law  provides  that  where  an  instrument  is  drawn  or 
indorsed  to  a  person  as  "cashier,"  or  other  fiscal  officer  of  a 
bank  or  corporation  of  any  kind,  it  is  deemed  to  be  payable  to 
the  bank  or  corporation  of  which  he  is  such  officer.  Such  an  in- 
strument may  be  negotiated  by  either  the  indorsement  of  the  bank 
or  corporation  or  by  the  indorsement  of  the  oflficer. 

If  the  name  of  the  payee  or  indorsee  of  a  bill  or  note  is  mis- 
spelled, the  same  should  be  indorsed  in  the  name  appearing  on  the 
instrument,  with  the  addition  of  the  proper  signature. 

A  negotiable  instrument  continues  to  be  negotiable  until  it  is 
indorsed  restrictively  or  is  discharged  by  payment. 

Time  of  Transfer. 

It  is  important  to  determine  the  time  when  a  bill  or  note  was 
transferred,  inasmuch  as  the  rights  of  the  purchaser  or  indorsee 
depend  upon  whether  the  instrument  was  transferred  before  or 
after  maturity. 

An  innocent  holder  for  value  of  a  bill  or  note  may  enforce 
payment  on  it  regardless  of  the  equities  existing  between  the  orig- 
inal parties.  For  example,  the  finder  of  a  lost  bill  or  note  may 
sell  the  same  to  a  third  party,  and  if  such  party  was  ignorant  of 
the  fact  that  he  was  buying  a  lost  instrument,  he  could  recover 
the  full  amount  thereof.  A  purchaser  for  value  of  a  stolen  bill 
or  note  may  likewise  recover  its  amount,  provided,  of  course, 


ii8  NEGOTIABLE  INSTRUMENTS 

that  he  was  ignorant  of  the  fact.  That  a  lost  or  stolen  negotiable 
instrument  may  be  transferred  by  one  having  no  title,  so  as  to 
confer  rights  upon  an  innocent  holder  for  value,  is  directly  op- 
posed to  the  settled  principles  of  law  that  no  property  can  be 
transferred  by  one  not  having  title  thereto,  but  an  exception  is 
made  in  the  case  of  negotiable  instruments  on  account  of  their 
peculiar  nature  and  function. 

The  purchaser  of  a  bill  or  note  after  maturity  takes  the  same 
at  his  peril,  for,  although  such  an  instrument  is  still  negotiable, 
it  is  subject  to  the  same  defenses  as  if  it  were  non-negotiable. 
Any  one  purchasing  a  negotiable  instrument  after  maturity  must 
necessarily  know  that  some  good  reason  existed  for  its  non-pay- 
ment, and  if  a  man  is  not  prudent  enough  to  ascertain  why  the 
bill  or  note  was  not  paid  before  maturity,  he  should  and  must 
suffer  the  consequences. 

Rights  of  the  Holder  in  General. 

The  holder  of  a  negotiable  instrument  may  recover  the 
amount  payable  thereon  in  his  own  name,  and  payment  to  him 
in  due  course  discharges  the  instrument.  In  any  discussion  of 
negotiable  instrument,  the  phrase  "a  holder  in  due  course"  is 
frequently  employed.  Let  us  inquire,  therefore,  who  is  a  holder 
in  due  course. 

A  holder  in  due  course  is  one  who  obtains  possession  of  an 
instrument  under  the  following  conditions : 

1.  That  it  is  complete  and  regular  upon  its  face; 

2.  That  he  became  the  holder  of  it  before  it  was  overdue, 
and  without  notice  that  it  had  been  previously  dishonored; 

3.  That  he  took  it  in  good  faith  and  for  value;  and 

4.  That  at  the  time  it  was  negotiated  to  him  he  had  no 
notice  of  any  infirmity  in  the  instrument  or  defect  in  the  title 
of  the  person  negotiating  it. 

It  will  also  be  noted  that  where  an  instrument  payable  on 
demand  is  negotiated  an  unreasonable  length  of  time  after  its 
issue  the  holder  is  not  deemed  a  holder  in  due  course. 

The  title  of  a  negotiable  instrument  is  defective  within 
the  meaning  of  the  law  if  the  person  who  negotiates  it  obtained  the 
instrument  or  any  signature  thereto  by  fraud,  duress  or  force, 
or  other  unlawful  means,  or  for  any  illegal  consideration,  or 
when  he  negotiates  it  in  breach  of  faith  or  under  such  circum- 
stances as  amount  to  a  fraud. 

A  holder  in  due  course  of  a  negotiable  instrument  holds  the 
same  free  from  any  defect  of  title  in  prior  parties  and  free  from 


NEGOTIABLE  INSTRUMENTS  119 

such  defenses  as  are  available,  to  prior  parties  among  themselves. 
Such  a  holder  in  due  course  may  enforce  payment  of  the  instru- 
ment for  the  full  amount  thereof  against  any  and  all  parties 
liable  thereon. 

The  law  further  specifies  that  a  negotiable  instrument  in 
the  hands  of  any  holder  other  than  one  not  in  due  course  is  sub- 
ject to  the  same  defenses  as  a  non-negotiable  instrument.  The 
law  presumes  that  every  holder  of  a  negotiable  instrument  is  a 
holder  in  due  course. 

Presentment  for  Payment. 

It  is  not  necessary  to  make  presentment  for  payment  in 
order  to  charge  the  person  primarily  liable  on  the  instrument; 
however,  if  an  instrument  by  its  terms  is  payable  at  a  particular 
place,  and  he  is  able  and  willing  to  pay  it  there  at  maturity,  such 
would  be  equivalent  to  a  tender  of  payment  on  his  part.  But 
with  the  exceptions  to  be  hereinafter  mentioned}  presentment  for 
payment  is  necessary  in  order  to  charge  the  drawers  and 
indorsers,  and  must  be  made  and  proved  by  the  original  parties 
before  any  liability  attaches  to  the  subsequent  parties  or  those 
who  are  conditionally  liable. 

In  case  the  instrument  is  not  payable  on  demand,  present- 
ment must  be  made  on  the  day  the  instrument  falls  due.  If  the 
instrument  is  payable  on  demand,  it  must  be  presented  within  a 
reasonable  time  after  it  was  issued,  but  in  the  case  of  a  bill  of 
exchange,  presentment  for  payment  will  be  sufficient  if  made 
within  a  reasonable  time  after  the  last  negotiation  of  the  instru- 
ment. 

In  order  to  meet  the  requirements  of  the  law,  presentment 
for  payment  must  be  made : 

1.  By  the  holder  or  some  one  authorized  to  receive  payment 
for  the  holder; 

2.  At  a  reasonable  hour  on  a  business  day; 

3.  At  a  proper  place,  which  requirement  is  complied  with 
when  the  instrument  is  presented  at  the  place  of  payment  speci- 
fied therein,  or  where  no  place  is  mentioned,  but  the  address  is 
given  in  the  instrument  of  the  party  to  make  payment,  and  it  is 
there  presented;  or  if  no  address  is  given  and  no  place  of  pay- 
ment specified,  and  the  instrument  is  presented  at  the  usual  place 
of  business  or  residence  of  the  person  to  make  payment ;  in  any 
other  case  it  is  presented  to  the  person  to  make  payment  wherever 
he  can  be  found,  or  is  presented  at  his  last  known  place  of 
business  or  residence ; 


I20  NEGOTIABLE  INSTRUMENTS 

4.  To  the  person  primarily  liable  on  the  instrument  or  in 
the  event  of  such  person  being  absent  or  inaccessible  present- 
ment will  be  sufficient  if  made  to  any  person  found  at  the  place 
where  the  instrument  is  made. 

On  the  subject  of  negotiable  instruments,  it  is  necessary  to 
show  the  instrument  to  the  person  from  whom  payment  is 
demanded  and  if  paid  by  him  the  instrument  must  be 
delivered  up. 

Any  clerk  or  employee  of  the  holder,  executor  or  adminis- 
trator in  case  of  the  death  of  the  holder,  or  an  assignee,  if  the 
holder  be  a  bankrupt,  may  act  as  the  agent  in  making  presentment 
on  behalf  of  the  holder. 

If  a  negotiable  instrument  is  payable  at  a  bank,  presentment 
for  payment  must  be  made  during  banking  hours,  unless  the 
person  to  make  payment  has  no  funds  in  bank  to  meet  payment 
during  banking  hours,  in  which  event  presentment  is  sufficient  if 
made  at  any  hour  before  the  bank  is  closed  on  that  day. 

It  is  not  necessary  to  make  presentment  for  payment  in 
order  to  charge  the  drawer  or  maker  of  a  bill  of  exchange  where 
he  has  no  right  to  expect  or  require  that  the  drawer  or  acceptor 
will  pay  the  instrument,  or  in  order  to  charge  an  indorser  where 
the  instrument  was  made  or  accepted  for  his  accommodation,  and 
he  has  no  right  to  expect  that  it  will  be  paid  if  presented. 

By  the  provisions  of  the  law  in  Pennsylvania,  delay  in  making 
presentment  for  payment  is  excused  if  resulting  from  circum- 
stances beyond  the  control  of  the  holder  and  which  delay  is  not 
due  to  his  default,  misconduct  or  negligence. 

It  is  not  necessary  to  make  presentment  for  payment  (i) 
when  after  exercising  proper  diligence,  presentment  as  required 
by  the -act  cannot  be  made;  (2)  in  cases  where  the  drawee  is  a 
fictitious  person;  (3)  where  there  has  been  a  waiver  of  present- 
ment, either  expressed  or  implied. 

A  negotiable  instrument  is  dishonored  for  non-payment, 
when  it  has  been  properly  presented  for  payment  and  payment  is 
refused,  or  when  presentment  is  excused  and  the  instrument  is 
overdue  and  unpaid. 

Every  negotiable  instrument  is  payable  at  the  time  specified 
therein,  and  if  the  day  of  maturity  falls  on  Sunday  or  any  legal 
holiday,  the  same  is  payable  on  the  next  succeeding  business  day. 
The  eighty-fifth  section  of  the  Pennsylvania  Negotiable  Instru- 
ment Act  also  provides  that  instruments  falling  due  on  Saturday 
are  to  be  presented  for  payment  on  the  next  succeeding  business 


NEGOTIABLE  INSTRUMENTS  121 

day,  except  if  an  instrument  is  payable  on  demand,  the  holder 
may,  at  his  option,  present  the  same  for  payment  at  any  time 
before  twelve  o'clock  noon  on  Saturday  when  that  entire  day  is 
not  a  holiday. 

Liabilities  of  the  Parties  to  a  Negotiable  Note. 

We  will  next  consider  the  liabilities  of  the  parties  to  a 
negotiable  instrument.  The  maker  of  a  note  assumes  an  absolute 
responsibility  to  pay  the  amount  set  forth  on  its  face  to  the  payee 
or  any  subsequent  holder,  when  the  note  is  due  or  at  any  sub- 
sequent time. 

The  maker  of  a  note  is  not  compelled  to  pay  the  same  until 
the  holder  thereof  has  presented  it  for  payment  and  tendered  its 
surrender. 

If  the  holder  of  a  note  is  unfortunate  enough  to  lose  or 
destroy  it  he  may  apply  to  a  Court  of  Equity,  who  would  compel 
payment,  but  would  require  the  holder  to  give  the  maker  an 
indemnity  bond,  in  which  he  insures  the  maker  against  any  loss 
on  account  of  having  to  pay  the  note  a  second  time. 

The  drawer  of  a  bill  of  exchange  engages  that  on  due  present- 
ment the  instrument  will  be  accepted  or  paid,  or  both,  and  if  it  be 
dishonored  and  the  necessary  proceedings  taken  on  dishonor,  he, 
the  drawer,  will  pay  the  amount  of  the  bill  to  the  holder  or  to  any 
subsequent  indorser  who  may  be  compelled  to  pay  the  same. 

Liabilities  of  the  Acceptor  of  a  Bill  of  Exchange. 

When  a  bill  of  exchange  is  presented  to  the  drawee,  he  may 
accept  thereof,  which  he  does  by  writing  on  the  face  of  the 
instrument  the  word  "Accepted,"  with  the  date  and  his  signature. 

The  drawee  then  becomes  the  acceptor,  and  by  accepting  the 
instrument  engages  that  he  will  pay  it  according  to  the  tenor  of 
his  acceptance  and  admits : 

1.  The  existence  of  the  drawer,  the  genuineness  of  his 
signature  and  his  capacity  and  authority  to  draw  the  instrument ; 
and 

2.  The  existence  of  the  payee  and  his  capacity  to  indorse. 

If  any  person  places  his  signature  upon  a  negotiable  instru- 
ment in  any  other  capacity  than  as  a  maker,  drawer  or  acceptor,  he 
does  so  as  an  indorser  unless  he  clearly  indicates  by  appropriate 
words  his  intention  to  be  found  in  some  other  capacity. 

Every  person  who  negotiates  an  instrument  by  delivery  or 
by  a  qualified  indorsement  makes  the  following  warranties : 


122  NEGOTIABLE  INSTRUMENTS 

1.  That  the  instrument  is  genuine  and  in  all  respects  what  it 
purports  to  be, 

2.  That  he  has  a  good  title  to  it. 

3.  That  all  prior  parties  had  capacity  to  contract. 

4.  That  he  has  no  knowledge  of  any  fact  which  would  impair 
the  validity  of  the  instrument  or  render  it  valueless. 

An  indorser  without  qualification  warrants  the  facts  stated 
in  the  first  three  paragraphs  above  set  forth,  and  further  that  the 
instrument  was  at  the  time  of  his  indorsement  valid.  Such  an 
indorser  also  engages  that  on  due  presentment  the  instrument 
shall  be  accepted  or  paid,  or  both,  as  the  case  may  be,  and  that 
if  it  be  dishonored  and  the  necessary  proceedings  on  dishonor  be 
taken,  he  will  pay  the  amount  thereof  to  the  holder  or  to  any 
subsequent  indorser  who  may  be  compelled  to  pay  the  same. 

The  only  other  person  who  can  properly  accept  a  bill  of 
exchange  is  the  drawee,  and  upon  his  refusal  to  accept  the  same, 
notice  of  dishonor  must  be  given  to  the  drawer  and  to  each  in- 
dorser, and  any  drawer  or  indorser  to  whom  such  notice  is  not 
given  is  discharged  from  liability. 

When  a  bill  of  exchange  is  formally  declared  to  be  dis- 
honored by  a  notary  public  it  is  said  to  be  protested.  When 
such  an  instrument  is  protested  it  may  be  accepted  "supra  protest" 
by  any  one  on  behalf  of  the  drawer  in  order  to  protect  him 
from  immediate  suit.  Any  one  accepting  a  bill  supra  protest 
guarantees  to  pay  the  same,  provided  acceptance  is  refused  by 
the  drawee  upon  a  second  presentation  and  also  provided  the 
acceptor  supra  protest  is  notified  thereof. 

There  are  two  kinds  of  liability  which  a  party  undertakes 
by  becoming  a  party  to  a  negotiable  instrument.  He  may  be 
either  primarily  liable,  in  which  event  he  is  the  principal  debtor 
and  is  the  party  bound  to  pay  the  amount  owing;  or  he  may  be 
secondarily  liable,  and  in  which  event  he  promises  to  pay  in  case 
some  one  else  does  not.  Thus  the  drawer  of  a  bill  of  exchange 
guarantees  to  the  payee  and  all  subsequent  holders  of  the  bill 
that  the  acceptor  shall  pay  at  maturity,  and  that  if  he  does  not, 
he,  the  drawer,  will.  Likewise  a  man  who  indorses  a  bill  or  note 
in  payment  of  a  debt  warrants  that  it  will  be  paid  at  maturity  and 
that  if  it  is  not,  he,  the  indorser,  will  pay  it.  It  will  therefore  be 
noted  that  the  drawer  of  a  bill  and  the  indorser  of  a  bill  or  note 
are  secondarily  rather  than  primarily  liable,  the  liability  depend- 
ing on  certain  conditions,  which  must  be  performed  by  the  holder. 
As  stated  heretofore,  the  holder  must  take  the  instrument  when 
due  to  the  maker  or  acceptor  and  demand  payment  thereof. 


NEGOTIABLE  INSTRUMENTS  123 

which  proceeding  is  known  as  presentment.  Furthermore,  the 
holder  of  a  bill  of  exchange  must  promptly  notify  the  drawer  or 
indorsers  of  its  non-payment  in  order  to  hold  them  responsible. 

Notice  of  Dishonor. 

As  it  is  necessary  to  give  notice  of  dishonor  to  the  drawer 
and  to  each  indorser  to  hold  them  liable,  let  us  consider  the 
circumstances  under  which  sui:h  notice  must  be  given. 

Notice  of  dishonor  may  be  given  by  or  on  behalf  of  the 
holder  or  by  any  person  to  the  instrument  who  might  be  com- 
pelled to  pay  it  to  the  holder,  and  when  such  notice  is  gfiven  by 
or  on  behalf  of  the  holder,  it  enures  to  the  benefit  of  all 
subsequent  holders. 

The  notice  may  be  in  writing  or  merely  oral,  and  may  be 
given  in  any  terms  which  sufficiently  identify  the  instrument  and 
indicate  that  it  has  been  dishonored  by  non-acceptance  or 
non-payment. 

Such  notice  may  be  given  by  delivering  it  personally  or 
through  the  mails.  If  the  party  to  whom  notice  should  be  given 
is  dead,  notice  should  be  given  to  a  personal  representative,  and 
if  there  be  none,  must  be  sent  to  the  last  residence  or  place  of 
business  of  the  deceased. 

The  law  requires  that  notice  of  dishonor  must  be  given 
within  the  following  times,  if  the  person  to  give  the  notice  and 
the  person  to  receive  notice  reside  in  the  same  place : 

1.  If  given  at  the  place  of  business  of  the  person  to  receive 
notice,  it  must  be  given  before  the  close  of  business  hours  on  the 
following  day  after  the  instrument  is  dishonored. 

2.  If  given  at  his  residence,  it  must  be  gfiven  before  the 
usual  hours  of  rest  on  the  following  day. 

3.  If  notice  is  given  through  the  mail,  it  must  be  deposited 
in  the  postoffice  in  time  to  reach  him  in  the  usual  course  on  the 
next  day. 

Where,  however,  the  persons  to  give  and  receive  notice 
reside  in  different  places,  notice  of  dishonor  must  be  given 
within  the  following  times : 

I.  If  sent  by  mail,  it  must  be  deposited  in  the  postoffice 
in  time  to  go  by  mail  the  day  following  the  day  of  dishonor,  or 
if  there  be  no  mail,  at  a  convenient  hour  on  that  day,  by  the 
next  mail  thereafter. 

2  If  given  otherwise  than  through  the  postoffice,  then 
within  the  time  that  notice  would  have  been  received,  in  due 


124  NEGOTIABLE  INSTRUMENTS 

course  of  mail,  if  it  had  been  deposited  in  the  postoflfice  within 
the  time  specified  above. 

Regardless  of  whether  a  miscarriage  occurs  through  the 
mails,  where  notice  of  dishonor  is  duly  addressed  and  deposited 
in  the  postoffice,  the  sender  has  given  legal  notice  and  is 
protected. 

A  party,  upon  receiving  notice  of  dishonor,  has  the  same 
time  after  receipt  of  said  notice  to  give  notice  to  antecedent 
parties  that  the  holder  has  after  dishonor. 

It  is  possible  for  a  man  to  waive  the  right  to  receive  notice 
of  dishonor,  which  may  be  done  either  before  the  time  of  giving 
notice  has  arrived  or  after  an  omission  to  give  notice.  All 
parties  are  bound  if  such  a  waiver  is  embodied  in  the  instrument, 
but  if  written  above  the  signature  of  an  indorser  it  binds  him 
only.  A  waiver  of  protest  is  a  waiver  of  not  only  a  formal 
protest,  but  also  of  presentment  and  notice  of  dishonor. 

Failure  to  give  notice  of  dishonor  is  excused  when  the 
delay  is  caused  by  circumstances  beyond  the  control  of  the  holder, 
if  it  is  not  imputable  to  his  default,  misconduct  or  negligence,  but 
when  the  cause  of  delay  ceases  notice  must  be  given  with  reason- 
able diligence. 

Notice  of  dishonor  is  not  required  to  be  given  to  the  drawer 
where  the  drawer  and  drawee  are  the  same  person,  or  where 
the  drawee  is  a  fictitious  person  or  one  not  having  capacity  to 
contract,  or  when  the  drawer  is  the  person  to  whom  the 
instrument  is  presented  for  payment.  Notice  of  dishonor  is  also 
dispensed  with  where  the  drawer  has  no  right  to  expect  or 
require  that  the  drawee  or  acceptor  will  honor  the  instrument,  or 
in  case  the  drawer  has  countermanded  payment  of  the 
instrument. 

It  is  not  necessary  to  give  notice  of  dishonor  to  an  indorser 
where  the  drawee  is  a  fictitious  person  or  a  person  not  having 
capacity  to  contract,  and  the  indorser  was  aware  of  the  fact  at 
the  time  he  indorsed  the  instrument,  or  where  the  indorser  is  the 
person  to  whom  the  instrument  is  presented  for  pajmient,  or 
where  the  instrument  was  made  or  accepted  for  the  accom- 
modation of  the  indorser. 

If  notice  has  been  given  of  dishonor  by  non-acceptance, 
notice  of  a  subsequent  dishonor  by  non-payment  is  not  necessary 
unless  in  the  meantime  the  instrument  has  been  accepted. 

Where  a  negotiable  instrument  has  been  dishonored  it  may 
be  protested   for  non-acceptance  or  non-payment,  as  the  case 


NEGOTIABLE  INSTRUMENTS  125 

may  be ;  but  protest  is  not  required  except  in  the  case  of  foreign 
bills  of  exchange. 

If  a  foreign  bill  of  exchange  is  dishonored  by  non-acceptance 
it  must  be  duly  protested  for  non-acceptance;  and  if  such  a  bill 
has  not  previously  been  dishonored  by  non-acceptance,  but  is 
dishonored  by  non-payment,  it  must  be  duly  protested  for  non- 
payment. Upon  failure  to  properly  protest  a  foreign  bill  of 
exchange,  the  drawer  and  indorsers  are  discharged. 

The  protest  must  contain  a  copy  of  the  bill  and  be  annexed 
thereto,  it  being  necessary  that  same  be  under  the  hand  and  seal 
of  the  notary  public  making  it,  and  that  it  specify: 

1.  The  time  and  place  of  presentment. 

2.  The  fact  that  presentment  was  made  and  the  manner 
thereof. 

3.  The  cause  or  reason  for  protesting  the  bill. 

4.  The  demand  made  and  the  answer  given,  if  any,  or  the 
fact  that  drawee  or  acceptor  could  not  be  found. 

It  is  not  necessary  to  make  protest  under  such  circum- 
stances as  would  dispense  with  notice  of  dishonor. 

Payment  for  Honor. 

The  manner  in  which  a  bill  of  exchange  may  be  accepted 
supra  protest  has  heretofore  been  indicated.  Upon  protest  of  a 
bill  for  non-payment,  any  person  may  also  intervene  and  pay 
the  same,  supra  protest,  for  the  honor  of  any  person  liable 
thereon.  To  operate  as  such,  payment  for  honor  supra  protest 
must  be  attested  by  a  notarial  act  of  honor,  which  may  be 
appended  to  the  protest  or  form  an  extension  of  it,  and  must 
be  based  on  a  declaration  made  by  the  payer  for  honor  and  for 
whose  honor  he  pays. 

In  case  the  holder  of  a  bill  of  exchange  should  refuse  to 
receive  payment,  supra  protest,  he  loses  his  right  of  recourse 
against  any  party  who  would  have  been  discharged  by  such 
payment. 

As  respects  one  another,  indorsers  are  liable  in  the  order 
in  which  they  indorse.  Each  indorser  promises  every  subsequent 
holder  of  the  bill  or  note  that  they  shall  suffer  no  loss  by  reason 
of  the  default  of  the  principal  debtor.  An  indorser,  therefore, 
although  responsible  for  subsequent  indorsees,  has  a  remedy 
against  any  prior  indorser. 


126  NEGOTIABLE  INSTRUMENTS 

Defenses  Against  Negotiable  Instruments. 

Such  defenses  as  may  be  set  up  in  a  suit  to  recover  on  a  bill 
or  note  are  divisible  into  two  classes:  First,  those  known  as 
absolute  defenses ;  second,  those  known  as  personal  defenses. 

Absolute  defenses  are  those  which  may  be  made  to  the  pay- 
ment of  a  bill  or  note,  and  are  good  against  all  the  world,  and 
are  of  three  kinds:  (A),  those  based  upon  the  incapacity  of  the 
parties  to  execute  a  negotiable  paper;  (B),  those  based  upon  the 
invalidity  of  the  contract  in  which  the  bill  or  note  was  given  and 
(C),  those  based  upon  the  fact  that  the  instrument  sued  upon 
has  been  extinguished  in  law.  A  defense  based  upon  any  of  the 
above  grounds  will  defeat  recovery  on  a  bill  or  note. 

Personal  defenses  are  those  good  only  against  the  immediate 
parties  to  a  negotiable  instrument,  i.  e.,  against  those  who  have 
actual  or  constructive  notice  of  their  existence. 

Defense  of  Incapacity. 

If  the  party  primarily  liable  to  pay  a  bill  of  exchange  or 
promissory  note  is  legally  incapable  of  executing  a  contract,  a 
negotiable  instrument  issued  by  such  a  party  is  invalid,  no  matter 
into  whose  hands  it  may  happen  to  come.  Illustrations  of  such 
incapacity  as  will  invalidate  negotiable  instruments  are  infancy, 
lunacy  and  extreme  intoxication. 

Defense  of  Illegality. 

As  a  general  rule,  the  fact  that  a  bill  or  note  was  given  for 
an  illegal  purpose  will  not  constitute  an  absolute  defense  to  its 
payment,  but  is  ordinarily  a  personal  defense.  If,  however,  a 
statute  is  passed  providing  that  a  certain  class  of  contracts  shall 
be  void,  a  bill  or  note  given  in  pursuance  of  such  contract  is 
void  in  the  hands  of  any  holder.  For  example,  in  Pennsylvania 
wagering  contracts  are  by  statute  declared  illegal,  and  con- 
sequently a  bill  or  note  given  to  settle  a  bet  is  void.  The 
purchaser  of  such  a  note,  no  matter  how  innocent  he  may  have 
been  of  its  illegality,  can  recover  nothing  against  the  maker. 

Defense  of  Extinguishment. 

The  fact  that  a  bill  or  note  has  been  extinguished  may 
always  be  set  up  as  an  absolute  defense  to  its  payment.  A 
negotiable  instrument  may  be  extinguished  in  three  ways:  (i) 
By  cancellation,  (2)  by  alteration,  and  (3)  by  release.     If  the 


NEGOTIABLE  INSTRUMENTS  127 

holder  of  a  negotiable  instrument  cancels  it  by  destroying  it,  the 
same  is  legally  extinguished,  and  thereafter  no  rights  can  bo 
obtained  under  it.  However,  if  the  cancellation  was  accidental, 
even  though  the  paper  itself  be  lost,  the  contract  is  not 
extinguished.  In  such  an  event,  as  was  pointed  out  heretofore, 
the  holder  may  recover,  even  if  he  is  unable  to  produce  the  bill 
or  note,  provided  he  gives  an  acceptable  bond  of  indemnity. 

An  intentional  alteration  of  a  material  element  of  a 
negotiable  instrument  by  the  holder  thereof,  or  by  his  order, 
will  operate  as  an  extinguishment  of  the  instrument.  When  we 
say  a  "material  alteration"  we  mean  such  a  change  in  the  terms 
of  the  bill  or  note  as  will  affect  the  rights  of  the  parties.  For 
instance,  a  change  of  the  date,  the  rate  of  interest,  amount  pay- 
able, time  of  payment,  names  of  the  parties,  etc.,  would  be 
material  alterations,  and  would  render  the  instrument  void.  A 
material  alteration,  if  made  innocently,  will  not  destroy  a  bill  or 
note,  the  holder  having  the  right  to  sue  upon  the  instrument  as 
it  was  originally  drawn,  if  his  act  was  done  in  good  faith. 
Alterations  made  by  a  stranger  are  regarded  as  being  immaterial. 
If  all  the  interested  parties  on  a  bill  or  note  consent  to  an 
alteration  thereof,  a  new  contract  is  made,  and  the  revised  instru- 
ment is  regarded  the  same  as  if  a  new  bill  of  exchange  or 
promissory  note  had  been  drawn. 

Extinguishment  by  Release. 

The  third  means  by  which  a  bill  or  note  may  be  extinguished 
is  by  a  release  or  retransfer  to  the  maker  or  acceptor  at  or  after 
maturity.  If,  for  example,  the  holder  of  a  bill  or  note  delivers 
the  same  to  the  acceptor  or  maker  at  maturity,  upon  payment  c  f 
the  amount  due,  the  instrument  is  extinguished,  and  if  it  is 
again  put  in  circulation  the  party  primarily  liable  could  not  be 
compelled  to  pay  the  same  a  second  time. 

Personal  Defenses. 

The  defenses  discussed  above  may  be  made  against  any  one, 
whether  or  not  he  is  an  innocent  purchaser.  Let  us  next  consider 
such  defenses  as  are  good  only  when  the  party  seeking  to  recover 
had  actual  or  constructive  notice  that  such  defense  existed.  In 
other  words,  if  the  plaintiff  is  an  innocent  purchaser  for  value, 
none  of  the  defenses  which  we  will  now  consider  can  be  made 
against  him.    Personal  defenses,  as  previously  observed,  are  not 


128  NEGOTIABLE  INSTRUMENTS 

available  against  a  holder  in  due  course.  To  cite  a  previous 
illustration,  assume  that  John  Doe  sells  Richard  Roe,  a  horse 
warranted  to  be  sound,  and  in  payment  therefor  receives  a  prom- 
issory note.  The  horse  having  turned  out  to  be  unsound  and 
worthless,  Richard  Roe  returns  the  animal  and  repudiates  his 
bargain,  whereupon  John  Doe  sues  him  upon  the  note.  John 
Doe  could  not  recover  because  he  had  made  false  representations 
concerning  the  horse,  and  consequently  obtained  the  horse 
through  fraud,  which  circumstance  constituted  a  good  defense 
on  the  part  of  Richard  Roe.  If,  in  this  illustration,  John  Doe 
had  transferred  the  note  to  Owen  Jenkins,  the  defense  of  fraud 
could  not  be  set  up  by  Richard  Roe  against  Owen  Jenkins, 
because  there  was  nothing  on  the  face  of  the  instrument  to 
indicate  fraud,  and  the  defense  of  fraud  could  only  be  set  up 
against  the  party  guilty  of  fraud.  It  is  necessary,  however, 
that  Owen  Jenkins  was  ignorant  of  the  fraud  at  the  time  he 
purchased  the  note,  and,  furthermore,  that  he  gave  value  for  it. 

We  note,  therefore,  that  whenever  one  party  has  induced 
another  by  false  representations  to  execute  a  bill  or  note  he  is 
guilty  of  fraud,  and  cannot  recover  against  him.  As  fraud  is  not 
an  absolute  defense,  any  subsequent  innocent  purchaser  could 
recover  on  the  instrument. 

Payment  of  a  bill  or  note  before  maturity  is  a  personal 
defense,  but  if  the  same  is  again  put  in  circulation,  and  gets 
into  the  hands  of  an  innocent  purchaser  for  value  prior  to  the 
date  upon  which  it  becomes  due,  the  holder  can  recover. 

If  the  execution  of  a  bill  or  note  is  obtained  through  duress 
i.  e.,  by  force  or  threat  of  punishment  or  injury,  the  injured 
party  has  a  perfect  defense  as  against  the  party  who  is  guilty 
of  the  act  of  duress.  Duress  is,  however,  but  a  personal  defense, 
and  consequently  could  not  be  set  up  against  an  innocent 
purchaser  of  value. 

As  between  the  original  parties  to  a  bill  or  note,  absence 
of  consideration  is  a  good  defense.  Absence  of  consideration  is 
to  be  distinguished  from  failure  of  consideration.  Suppose  John 
Doe  sells  Richard  Roe  a  farm,  in  payment  for  which  Richard 
Roe  gives  John  Doe  his  promissory  note.  It  subsequently 
develops  that  John  Doe  had  no  title  to  the  farm,  or,  rather,  his 
title  turns  out  to  be  valueless.  In  this  case  the  consideration  has 
failed,  and  such  failure  of  consideration  is  a  good  defense  to 
the  payment  of  the  note  as  against  any  one  who  is  not  an 
innocent  purchaser  for  value. 


NEGOTIABLE  INSTRUMENTS  129 

Discharge  of  Negotiable  Instruments. 

The  Negotiable  Instrument  Act  of  Pennsylvania  (Sec.  119) 
provides  five  means  by  which  a  negotiable  instrument  may  be 
discharged,  to  wit: 

1.  By  payment  in  due  course  by  or  on  behalf  of  the  principal 
debtor. 

2.  By  payment  in  due  course  by  the  party  accommodated, 
where  the  instrument  is  made  or  accepted  for  accommodation. 

3.  By  the  intentional  cancellation  thereof  by  the  holder. 

4.  By  any  other  act  which  will  discharge  a  simple  contract 
for  the  payment  of  money. 

5.  When  the  principal  debtor  becomes  the  holder  of  the 
instrument,  at  or  after  maturity,  in  his  own  right. 

A  person  who  is  secondarily  liable  on  the  instrument  is 
discharged  ( i )  by  an  act  which  would  discharge  the  instrument ; 

(2)  by  the  intentional  cancellation  of  his  signature  by  the  holder; 

(3)  by  the  discharge  of  a  prior  party;  (4)  by  a  valid  tender  of 
payment  made  by  a  prior  party;  (5)  by  a  release  of  the  principal 
debtor,  unless  the  holder's  right  of  recourse  against  the  party 
secondarily  liable  is  expressly  reserved. 

However,  an  instrument  is  not  discharged  upon  payment 
by  the  party  secondarily  liable  thereon,  but  the  party  so  pay- 
ing it  is  remitted  to  his  former  rights  as  regards  all  prior  parties, 
and  he  may  strike  out  his  own  and  all  subsequent  indorsements 
and  again  negotiate  the  instrument,  except: 

1.  Where  it  is  payable  to  the  order  of  a  third  person,  and 
has  been  paid  by  the  drawer;  and 

2.  Where  it  was  made  or  accepted  for  accommodation,  and 
has  been  paid  by  the  party  accommodated. 

The  law  of  Pennsylvania  applicable  to  bills  of  exchange 
drawn  in  a  set  provides  as  follows:  Where  a  bill  of  exchange 
is  drawn  in  a  set,  and  each  part  is  numbered  and  contains  a 
reference  to  the  other  parts,  the  whole  constitutes  one  set.  If 
two  or  more  parts  of  a  set  are  negotiated  to  different  holders  in 
due  course,  the  holder  whose  title  first  accrues  is  the  true  owner 
of  the  bill  as  between  such  holders.  If  the  holder  of  a  set  should 
indorse  two  or  more  parts  to  diflFerent  parties  he  becomes  liable 
on  every  such  part,  and  every  indorser  subsequent  to  him  is 
liable  on  the  part  he  has  himself  indorsed,  the  same  as  if  such 
parts  were  separate  bills.  Acceptance  of  a  bill  drawn  in  a  set 
may  be  written  on  any  part,  but  must  be  written  on  one  part 
only,  for  if  the  drawee  accepts  more  than  one  part,  and  such 
accepted  parts  are  negotiated  to  diflFerent  holders,  he  is  liable 


I30  NEGOTIABLE  INSTRUMENTS 

on  every  such  part  the  same  as  if  it  were  a  separate  bill.  Where 
the  acceptor  of  a  bill  drawn  in  a  set  pays  the  same,  and  does  not 
insist  on  the  part  bearing  his  signature  being  delivered  to  him, 
and  such  part  at  maturity  is  outstanding  in  the  hands  of  a  holder 
in  due  course,  he  becomes  liable  to  the  holder  thereon. 

With  the  exceptions  above  noted,  when  any  one  part  of  a 
bill  drawn  in  a  set  is  discharged  by  payment,  the  whole  bill 
is  also  discharged. 

Checks. 

In  reality  a  check  is  a  species  of  a  bill  of  exchange,  the  dis- 
tinction being  that  it  must  be  drawn  on  a  bank,  is  payable  on 
demand,  and  no  acceptance  is  necessary.  The  law  applicable 
to  bills  of  exchange,  payable  on  demand,  likewise  applies  to 
checks. 

Unless  a  check  is  presented  for  payment  within  a  reason- 
able time  after  its  issue  the  maker  will  be  discharged  from  lia- 
bility thereon  to  the  extent  of  loss  caused  by  delay.  For  ex- 
ample, if  I  neglect  to  demand  payment  of  a  check  given  me  in 
settlement  of  a  debt  for  a  considerable  time,  and  the  bank  on 
which  the  check  is  drawn  should  fail,  I  must  suffer  the  conse- 
quences of  my  own  carelessness  and  cannot  hold  the  maker 
liable.  But  if  I  should  simply  neglect  to  deposit  a  check  until 
after  the  maker  has  withdrawn  his  funds,  I  can  still  recover 
on  the  check.  The  safest  course  is  to  deposit  a  check  within 
twenty-four  hours  after  receiving  the  same. 

We  observed  that  in  the  case  of  a  bill  of  exchange  the 
drawee  was  not  liable  until  he  first  accepts  the  same.  In  the  case 
of  a  check  the  drawee  does  not  accept  at  all.  Hence  the  drawee 
(the  bank)  is  under  no  liability  to  pay  the  check  to  the  holder, 
a  check  being  merely  an  order  on  the  bank  to  pay  a  certain  sum 
from  the  funds  belonging  to  the  drawer.  If  the  drawer's  credit 
is  injured  by  the  bank's  refusal  to  pay  a  check  when  the  maker 
had  sufficient  funds  in  bank  to  meet  it,  the  bank  may  be  sued 
by  the  maker  of  the  check,  but  the  payee  has  no  right  of  action 
against  the  bank. 

Certified  Checks. 

A  check  does  not  operate  as  an  assignment  of  the  funds  of 
the  maker  to  the  amount  thereof,  but  if  the  check  is  certified 
there  is  an  assignment  of  the  funds  in  bank.  When  a  bank  cer- 
tifies a  check  its  proper  officer,  either  the  president  or  cashier, 


NEGOTIABLE  INSTRUMENTS  131 

indorses  it  "Good"  or  "Certified,"  with  his  signature  or  stamp, 
which  act  is  equivalent  to  an  acceptance. 

A  bank  by  certifying  a  check  sets  aside  sufficient  funds  be- 
longing to  the  drawer  to  pay  the  amount  mentioned  therein, 
and  the  funds  become  the  property  of  the  holder  of  the  certified 
check.  The  holder  may  sue  the  bank  to  recover  upon  refusal 
to  pay  a  certified  check.  The  drawer  is  under  no  further  liability 
after  the  check  has  been  certified. 

Drafts. 

The  word  draft  is  indiscriminately  applied  to  checks,  bills 
of  exchange  or  to  non-negotiable  orders  for  the  payment  of 
money.  This  application  of  the  word  is  not  entirely  erroneous, 
but  it  is  more  correctly  applied  to  instruments  in  the  form  of 
bills  of  exchange  that  are  drawn  for  the  purpose  of  collecting 
for  the  drawer's  own  use  and  account  sums  of  money  due  him 
from  sundry  persons.  If  the  drawer  procures  money  on  draft 
before  it  is  paid,  it  becomes  technically  a  bill  of  exchange.  The 
payee  of  the  draft  is  usually  the  person  or  institution  delegated 
by  the  drawer  to  make  the  collection,  and  it  is  delivered  or  sent 
by  mail  to  the  payee  for  that  purpose.  Banks  or  express  com- 
panies usually  perform  this  service,  making  a  small  charge  there- 
for. The  drawer  usually  places  such  drafts  with  his  bank  for 
collection,  but  in  many  instances  the  drawer  draws  them  pay- 
able to  some  bank  in  the  place  where  the  debtor  lives,  and  mails 
them  to  such  bank  with  the  request  that  the  bank  collect  and 
remit  this  amount,  less  collection  charges. 

Bills  of  lading,  which  are  negotiable,  will  be  considered  in 
connection  with  the  subject  of  common  carriers,  to  which  they 
more  directly  appertain. 

Conflict  of  Laws. 

Although  the  law  governing  negotiable  instruments  has 
been  made  practically  uniform  throughout  the  United  States,  the 
law  differs  in  many  material  regards  in  different  jurisdictions. 
In  concluding  the  subject  of  negotiable  instruments  let  us  briefly 
summarize  the  rules  regulating  cases  where  the  law  of  one  State 
conflicts  with  the  law  of  another.  Suppose  a  bill  of  exchange 
is  drawn  in  Pennsylvania  upon  a  man  living  in  New  Jersey, 
directing  him  to  pay  a  sum  of  money  to  a  party  living  in  Dela- 
ware. The  payee  negotiates  the  instrument  in  New  York  and  the 
parties  when  a  dispute  arose  lived  in  Maryland. 


132  NEGOTIABLE  INSTRUMENTS 

The  law  of  the  place  where  the  contract  was  made — in  our 
illustration  Pennsylvania — will  govern  all  questions  regarding  the 
making  of  the  contract ;  in  other  words,  the  law  of  Pennsylvania 
would  determine  whether  the  bill  was  drawn  up  properly  and 
was  negotiable.  The  law  of  New  Jersey,  which  in  our  illustra- 
tion is  the  place  where  the  contract  was  to  be  performed,  would 
govern  the  liability  of  the  maker  of  the  note  or  the  acceptor  of 
the  bill,  and  would  also  determine  whether  days  of  grace  should 
be  allowed,  and  also  whether  the  bill  should  be  protested  for 
dishonor.  The  law  of  New  York  where  the  bill  was  negotiated, 
would  govern  the  question  whether  or  not  a  proper  transfer 
had  been  made  and  legal  title  vested  in  the  present  holder. 
Lastly,  the  law  of  Maryland,  the  State  wherein  suit  was  brought, 
will  govern  all  questions  of  evidence  and  all  questions  covering 
the  Statutes  of  Limitations ;  in  other  words,  the  law  of  Maryland 
will  regulate  the  time  within  which  suit  must  be  brought,  and 
the  admissibility  of  evidence  produced  in  such  suit  and  necessary 
to  sustain  the  same. 


REAL  ESTATE  AND  CONVEYANCING. 

Definition — Land — Tenements — Hereditaments  —  Landlord  and 
Tenant — Leases — Distress — Recovery  of  Possession — For- 
cible Entry  and  Detainer — Mining  Leases — Fees — Dower — 
Mortgages — Remainders  and  Reversions — Intestate  Act 
i8s3 — Title  by  Purchase — Deeds — Title  by  Matter  of 
Record. 

WE  are  informed  by  Holy  Writ  that  in  the  beginning  of  the 
world  God  gave  to  man  "dominion  over  all  the  earth," 
etc.,  which  gift  constitutes  the  only  true  and  solid 
foundation  of  man's  dominion  over  external  things.  It  has  been 
already  pointed  out  that  law  was  divided  into  two  main  divisions 
— (i)  the  law  applicable  to  personal  rights  and  wrongs,  and 
(2)  the  law-governing  property,  property  being  of  two  varieties, 
personal  property  and  real  property. 

Originally  the  crudest  division  of  property  was  into  things 
movable  and  things  immovable.  Land  is  immovable,  and  every 
other  species  of  property  is  movable  except  such  as  is  fastened 
or  attached  to  land.  The  term  "real"  property  or  real  estate, 
as  referable  to  things  immovable,  was  developed  later,  about  the 
beginning  of  the  seventeenth  century,  and  arose  from  the  nature 
of  the  legal  action  taken  to  redress  injury  to  this  class  of  prop- 
erty. It  is  impossible  in  a  treatise  of  this  kind  to  trace  the 
theory  and  development,  through  successive  ages,  of  a  man's 
^ight  to  acquire,  possess  and  dispose  of  real  estate,  interesting 
and  instructive  as  such  an  inquiry  would  be,  and  it  must  there- 
fore suffice  for  us  to  ascertain  what  is  the  "Law  of  Real  Estate" 
to-day.  After  we  have  found  out  what  the  term  real  estate 
comprises  we  will  then  be  in  a  better  position  to  consider 
"Conveyancing,"  or  the  means  whereby  an  estate  in  real  property 
may  be  transferred  or  conveyed. 

An  estate  is  an  interest  in  a  thing,  as  distinguished  from  the 
thing  itself;  and  real  estate  is,  literally  speaking,  an  interest 
(estate)  in  a  real  thing,  the  term  "real,"  in  its  technical  sense, 
applying  to  property  of  a  permanent,  fixed  and  immovable 
nature. 

Following  in  brief  the  classification  employed  by  Blackstone, 
things  real  comprise  lands,  tenements  and  hereditaments. 


134  REAL  ESTATE  AND  CONVEYANCING 

The  term  "land"  has  a  very  wide  meaning  legally,  compre- 
hending any  ground,  soil  or  earth,  and  also  water,  which  is  an 
apparent  solecism.  But  suppose,  for  example,  I  seek  to  obtain 
title  to  a  certain  tract  of  land  upon  which  is  located  a  large  body 
of  water.  Such  property  must  be  referred  to  as  so  much  land 
covered  with  water.  Water  being  a  movable  substance,  the  owner 
of  the  land  underlying  the  water  has  only  a  temporary  or  usu- 
fructuary property  therein,  which  will  be  better  understood 
when  we  consider  the  rights  of  riparian  owners.  Land  also  in 
its  legal  signification  extends  indefinitely  upward  and  downward. 
Therefore,  no  man  can  erect  a  building  upon  my  land,  or  which 
would  overhang  my  land,  without  my  consent.  Furthermore, 
the  owner  of  the  surface  of  the  earth  owns  everything  beneath 
his  boundaries  to  the  center  thereof,  as  is  everyday  experience 
in  the  mining  regions  of  this  country.  Hence  by  the  use  of  the 
word  "land"  in  a  grant  everything  terrestrial  will  pass. 

The  term  "tenement"  has  a  still  wider  meaning  than  the 
term  "land,"  and,  although  it  is  commonly  applied  to  houses  and 
other  buildings,  legally  it  means  everything  of  a  permanent 
nature  that  can  be  held,  including  property  which  is  perceptible  to 
the  senses,  such  as  lands  and  merchandise,  as  well  as  property 
or  estates  of  an  imperceptible  nature,  such  as  rights  of  way 
through  the  property  of  another  and  other  rights  and  interests 
which  arise  out  of,  or  are  in  any  degree  connected  with,  or 
exercisable  within  land  or  real  estate. 

The  term  "hereditament"  has  the  broadest  meaning  of  all, 
including  not  only  lands  and  tenements,  but  also  whatever  may 
be  inherited,  whether  it  be  corporeal  (rights  which  are  visible) 
or  incorporeal  (rights  which  are  invisible),  real,  personal  or 
mixed. 

We,  therefore,  observe  that  real  estate  consists  in  sucK 
interest  as  a  man  may  have  in  things  real,  viz.,  lands,  tenements 
and  hereditaments,  and  the  law  of  real  estate  is  the  science  which 
ascertains  and  defines  the  rights  and  obligations  of  men  in  their 
relations  to  each  other  in  respect  to  land. 

Before  entering  into  a  more  detailed  discussion  of  the  law 
of  real  estate  it  is  necessary  to  note  certain  further  distinctions 
between  real  and  personal  property,  which  is  important  (i)  be- 
cause of  the  difference  in  devolution,  (2)  because  of  the  differ- 
ence in  liability  for  debts,  and  (3)  because  of  the  conversion 
of  realty  into  personalty  and  personalty  into  realty  which  results 
from  the  operation  of  certain  equitable  doctrines. 

Upon  the  death  of  the  owner  of  real  estate  the  same  passes 


REAL  ESTATE  AND  CONVEYANCING  135 

to  his  heirs-at-law,  whereas  title  to  the  personal  property  of 
which  a  decedent  dies  possessed  passes  to  his  executor  or 
administrator. 

The  law  of  Pennsylvania  governing  executions  provides 
that  both  in  life  and  after  death  the  personal  property  of  a  man 
is  primarily  liable  for  his  debts.  In  other  words,  his  real  estate 
cannot  be  sold  until  it  is  first  shown  that  his  personal  property 
is  insufficient  to  pay  his  indebtedness. 

Real  estate  may  be  converted  into  personal  property,  as, 
for  example,  when  a  man  in  his  will  directs  that  his  real  estate 
shall  be  sold  and  the  proceeds  divided  in  a  certain  manner.  In 
such  event  the  real  estate  is  to  all  legal  purposes  regarded  as 
personal  property.  We  also  noted  in  our  study  of  partnerships 
that  land  or  real  estate  owned  by  a  partnership  is  regarded  as 
personal  property.  There  are  many  other  conditions  under 
which  real  estate  is  converted  into  personal  property,  which  we 
will  discuss  more  at  length  later. 

Vice  versa,  personal  property  may  likewise  be  converted 
into  real  estate.  Fragments  of  a  dwelling  house,  blown  down  by 
a  hurricane,  although  in  their  changed  state  partaking  of  the 
nature  of  personal  property,  are  regarded  as  real  estate.  A  key 
to  a  lock  fastened  upon  a  door  is  also  considered  as  realty. 
Where  in  a  will  money  is  directed  to  be  invested  in  real  estate 
it  becomes  real  estate  upon  the  death  of  decedent. 

Composite  Character  of  Same  Property. 

Again  property  may  at  the  same  time  partake  of  the  nature 
of  real  estate  and  personalty.  For  illustration,  a  factory  owned 
by  a  corporation  is  in  reality  real  estate,  but,  as  constituting  a 
part  of  the  property  owned  and  represented  in  the  form  of 
stock  by  the  members  of  the  corporation,  the  same  is  personal 
property.  Growing  crops  are  personal  property,  but  if  the  land 
is  sold  they  pass  as  part  of  the  real  estate. 

The  owner  of  land,  through  or  by  which  a  stream  of  water 
runs,  has  the  right  to  receive  the  flow  of  the  water  in  its  natural 
or  accustomed  channel,  "without  diminution  in  quantity  or 
deterioration  in  quality"  to  any  substantial  extent.  Any  right 
which  confers  the  privilege  of  interfering  with  this  natural  flow 
is  an  easement. 

If  water  constitutes  a  swamp  or  percolates  through  the  soil 
and  flows  in  no  regular  channel,  the  owner  of  the  land  may 
draw  the  water  from  the  swamp  or  divert  the  percolation. 


136  REAL  ESTATE  AND  CONVEYANCING 

Lateral  Support. 

The  third  kind  of  easement  mentioned  is  that  of  lateral 
support,  which  is  the  right  of  one  land-owner  to  have  his  land 
and  the  structures  thereon  supported  by  the  adjoining  land.  In 
making  excavations  for  building  purposes,  one  must  do  so  in  a 
manner  not  to  injure  his  neighbor's  land.  In  large  cities  every 
man  is  compelled  so  to  build  his  walls  that  the  adjoining  land- 
owner may  enjoy  the  right  to  construct  a  building  to  the  verge 
of  the  boundary  line. 

Drain  and  Drip. 

It  is  a  well-established  rule  of  law  that  no  action  can  be 
maintained  for  unavoidable  damage  to  another's  land  in  the 
lawful  use  of  one's  own  land.  No  man,  however,  has  the  right 
to  drain  the  water  from  his  own  land  upon  the  land  of  another 
except  through  natural  channels. 

It  is  very  common  in  towns  and  cities  to  receive  or  drain  off 
water,  through  pipes  laid  on  another's  land.  But  the  right  of 
drip,  which  is  the  right  to  discharge  rain  water  from  the  eaves 
or  gutters  upon  the  land  of  another,  is  not  so  common. 

Burial  Lots  and  Pews. 

The  owner  of  a  burial  lot  in  a  cemetery  enjoys  only  an  ease- 
ment, which  is  the  right  of  interment  in  the  cemetery.  The  pur- 
chaser of  a  cemetery  lot  buys  the  same  with  the  understanding 
that  a  change  of  circumstances  may  necessitate  a  change  of 
location.  He  does  not  purchase  the  ground  outright.  Similarly 
the  owner  of  a  pew  in  a  church  has  only  an  easement,  for  if  the 
church  is  destroyed  by  fire  or  otherwise,  the  pew-owner's  right  is 
gone.  Should  the  church  be  rebuilt,  or  changed  to  a  new 
location,  the  owner  of  the  pew  would  have  no  claim  to  his  seat. 

Every  easement  must  originate  by  grant  or  agreement, 
either  express  or  implied.  Where  an  easement  has  existed  for 
twenty-one  years  and  over,  a  grant  is  implied.  Such  an 
easement  is  termed  prescriptive.  An  easement  by  express  grant 
is  created  by  expressly  reserving  the  same  in  a  deed. 

Easements  may  be  extinguished  by  a  release,  abandonment, 
merger  or  cessation  of  the  purpose  or  necessity  of  the  easement. 

The  last  and  most  important  class  of  incorporeal  heredita- 
ments is  rents.  Rent  may  be  defined  to  be  a  periodical  and  cer- 
tain profit  issuing  out  of  lands  and  tenements.  The  three  spe- 
.  cies  of  rents  existing  at  common  law  have  become  practically 


REAL  ESTATE  AND  CONVEYANCING  137 

obsolete,  and,  therefore,  the  rents  which  we  will  consider  are 
(i)  ground  rents  and  (2)  ordinary  rents  incident  to  the  relation 
of  landlord  and  tenant. 

Ground  Rents. 

A  ground  rent  is  a  certain  sum  of  money  which  the  grantor 
of  land  reserves  to  himself  and  his  heirs,  to  be  paid  at  regular 
periods  out  of  the  land  conveyed.  Ground  rents  are  real  estate, 
and  pass  to  the  heir;  they  may  be  mortgaged  and  are  bound 
by  a  judgment,  but  are  not  liable  for  any  part  of  the  taxes  as- 
sessed upon  the  owner  of  the  land  out  of  which  the  rent  issues. 
Formerly,  if  there  were  no  clause  of  redemption  in  the  deed 
creating  the  ground  rent,  such  ground  rent  would  be  irredeem- 
able.    By  statute  irredeemable  ground  rents  cannot  be  created. 

If  the  owner  of  the  ground  rent  should  obtain  title  to  the 
land  out  of  which  it  issues  the  rent  is  extinguished  by  merger. 
Ground  rents  may  also  be  extinguished  by  release.  Should  the 
ground  rent  be  in  arrears  the  owner  may  recover  same  by  dis- 
tress proceedings  or  by  an  ordinary  action  in  assumpsit  (debt). 
The  right  of  exemption  is  usually  waived  in  a  ground  rent  deed, 
but  if  not  may  be  claimed. 

Rent. 

The  next  species  of  rent  which  we  shall  consider,  and  by 
far  the  most  important,  is  the  ordinary  rent  incident  to  the 
relation  of  landlord  and  tenant.  Such  rent  had  its  origin  in  the 
rent  service  of  feudal  times.  In  the  Middle  Ages  a  man  was 
required  to  render  to  his  lord  a  certain  amount  of  military  service 
in  payment  for  the  use  of  such  land  as  was  allotted  him.  When 
military  service  was  no  longer  required,  the  owner  of  the  land 
substituted  the  payment  of  money  in  lieu  thereof. 

To-day  such  rent  is  reserved  to  the  owner  of  lands  and 
buildings  under  the  form  of  a  lease,  which  may  be  either  writ- 
ten or  oral.  The  Statutes  of  Frauds  provide  that  a  lease  for  a 
longer  term  than  three  years  shall  be  in  writing,  otherwise  it 
shall  be  deemed  a  lease  from  year  to  year.  Frequently  an  agree- 
ment is  entered  into  for  a  lease  preparatory  to  executing  one. 
In  such  case  the  agreement  should  be  specific  as  to  the  details 
to  be  included  in  the  lease.  If  the  agreement  for  a  lease  is  made 
orally,  and  the  tenant  is  given  possession  of  the  premises  and 
makes  improvements  thereon  in  view  of  such  agreement,  a  Court 
of  Equity  will  compel  the  execution  of  the  lease  agreed  upon. 


138  REAL  ESTATE  AND  CONVEYANCING 

Definition  of  a  Lease. 

A  lease  is  a  contract  for  the  possession  of  lands  and  tene- 
ments in  consideration  of  the  payment  of  rental  therefor.  In 
every  lease  there  must  be  a  lessor  able  to  grant  the  land,  a  lessee 
capable  of  accepting  the  grant,  and  property  capable  of  being 
granted.  The  rent  payable  under  a  lease  may  be  in  money, 
services  or  in  any  stipulated  article,  such  as  grain  or  ore. 

Implied  Lease. 

If  a  tenant  remains  in  possession  of  the  demised  premises 
after  the  expiration  of  the  term  of  the  lease,  and  pays  rent, 
the  law  will  imply  that  the  lease  has  been  renewed  for  another 
term  (usually  from  year  to  year)  subject  to  the  same  rent  and 
other  agreements  contained  in  the  original  lease. 

In  many  instances  the  owner  of  property  places  the  rent- 
ing thereof  in  the  hands  of  an  agent.  A  lease  by  an  agent 
should  be  in  the  following  form:  "John  Doe  by  Richard  Roe, 
agent."  Unless  an  agent  discloses  the  fact  of  his  agency  he  be- 
comes personally  liable.  A  lease  signed  by  one  partner  for  prop- 
erty used  by  the  partnership,  enures  to  the  benefit  of  the  firm,  and 
is  as  much  a  partnership  transaction  as  a  sale  of  partnership 
goods  by  a  partner  would  be;  a  partner  taking  a  lease  in  his 
own  name  holds  the  property  in  trust  for  the  firm. 

A  lease  signed  by  a  minor  is  not  void,  but  may  be  voided 
when  the  minor  reaches  majority.  If  a  minor  holds  possession 
of  leased  property  after  becoming  of  age,  he  is  liable  for  past 
and  future  rent  under  a  lease  made  during  minority.  A  mar- 
ried woman  may,  by  Act  of  Assembly,  lease  her  real  estate,  and 
make  any  contract  in  writing  or  otherwise  which  may  be  neces- 
sary to  the  enjoyment  of  her  right  to  lease.  A  married  woman 
may  also  become  a  lessee  of  real  estate. 

If  property  is  leased  to  a  corporation  it  is  advisable  to  see 
that  the  Board  of  Directors  have  authorized  the  lease.  It  is 
not  necessary  for  a  corporation  to  affix  its  corporate  seal  to  a 
lease,  and  use  by  a  corporation  of  leased  premises  is  a  ratification 
of  the  lease  by  its  officer  or  agent. 

An  executor  or  administrator  has  no  power  to  lease  real 
estate,  but  a  trustee  may  lawfully  do  so. 

It  is  not  necessary  in  a  lease  to  describe  the  premises 
demised  with  the  same  particularity  as  in  a  deed. 

It  is  sufficient  to  describe  the  property  in  a  general  way, 
and  it  is  best  to  give  the  street  number,  if  any.    If  not,  the  de- 


REAL  ESTATE  AND  CONVEYANCING  139 

scription  should  be  sufficiently  specific  to  comply  with  the  law  re- 
garding ejectments,  of  which  more  hereafter.  It  is  no  defense 
to  the  payment  of  rent  that  the  premises  are  described  as  being 
located  on  the  wrong  corner. 

The  duration  of  the  lease  should  always  be  set  forth  therein. 
If  a  tenant  rents  by  the  month  he  has  the  right  to  terminate  the 
lease  at  the  end  of  the  month.  In  computing  the  term  of  a 
lease,  the  first  day  is  included,  and  the  last  day  excluded.  For 
example,  if  property  is  leased  for  one  year  from  the  first  day  of 
April,  the  lease  would  expire  on  the  last  day  of  the  following 
March. 

The  date  upon  which  rent  is  payable  should  be  clearly  set 
forth  in  the  lease.  If  no  time  for  the  payment  of  rent  is 
mentioned,  it  is  payable  at  the  end  of  the  term. 

If  the  landlord  sells  leased  property,  the  rent  falling  due 
after  date  of  sale  is  payable  to  the  purchaser,  but  in  Philadelphia 
county  it  is  the  custom  to  apportion  rent  to  the  date  of  settle- 
ment. A  tenant  who  has  assigned  his  lease,  even  with  the  land- 
lord's consent,  remains  liable  to  pay  rent  unless  the  landlord 
expressly  releases  him  from  such  obligation.  If  rent  is  due 
and  unpaid  at  the  date  of  the  landlord's  death,  it  is  payable  to 
his  executors,  but  if  the  landlord  dies  before  the  rent  becomes 
due,  it  is  payable  to  the  heir  of  the  landlord. 

If  leased  premises  are  wholly  destroyed  by  fire  the  tenant 
is,  nevertheless,  liable  to  pay  rent  for  the  balance  of  his  term, 
and  the  landlord  is  not  obliged  to  rebuild.  This  rule  may  seem 
unjust,  but  it  is  the  law.  To  protect  himself  a  tenant  should 
provide  in  the  lease  against  such  a  contingency. 

Repairs. 

Unless  so  provided  in  the  lease,  the  landlord  is  not  liable  to 
repair  the  leased  premises.  It  is  usual  in  a  lease  to  provide  that 
the  landlord  shall  make  only  repairs  of  a  permanent  nature, 
such  as  putting  on  a  new  roof,  etc.,  and  that  the  tenant  shall 
make  all  tenantable  repairs,  such  as  putting  in  windows  or  doors, 
repairing  fences,  keeping  the  premises  wind  or  water-tight  to 
prevent  waste  and  decay.  Under  a  covenant  in  a  lease  to  make 
repairs  a  tenant  is  not  bound  to  repair  injuries  caused  by  what 
are  called  "Acts  of  God"  (cyclones,  etc.),  or  of  a  public  enemy. 

It  is  policy  as  a  matter  of  protection  for  a  landlord  to  stipu- 
late in  a  lease  that  it  shall  not  be  assigned  without  his  consent. 
An  assignment  by  act  of  law,  such  as  in  bankruptcy,  execution 
upon  a  judgment,  etc.,  is  not  a  breach  of  covenant  not  to  as- 


140  REAL  ESTATE  AND  CONVEYANCING 

sign.  To  avoid  such  a  result,  leases  frequently  have  a  provision 
against  involuntary  assignments,  for  illustration — "nor  shall  the 
lessee  assign  the  term  hereby  granted,  or  underlet  the  premises, 
without  the  written  consent  of  the  lessor  indorsed  thereon,  an 
assignment  within  the  meaning  of  this  lease  being  understood  and 
intended  to  comprehend  not  only  the  voluntary  action  of  the 
lessee,  but  also  every  levy  or  sale  on  execution  or  other  legal  pro- 
cess, and  every  assignment  or  sale  in  bankruptcy  or  insolvency, 
or  under  any  other  compulsory  procedure  or  order  of  Court." 

Re-Entry. 

A  landlord  has  the  right  to  forfeit  the  lease  and  re-enter 
the  premises  upon  default  of  the  tenant  in  payment  of  rent  or 
default  of  any  of  his  agreements.  Formal  demand  must  first  be 
made. 

It  is  a  settled  rule  of  law  that  a  tenant  cannot  dispute  the 
title  of  his  landlord,  and,  if  he  do  so,  the  landlord  may  elect  to 
annul  the  lease. 

It  is  advisable  to  have  the  signatures  to  a  lease  properly 
witnessed. 

Sometimes  a  landlord  requires  a  tenant  to  furnish  security 
for  the  payment  of  rent,  and  when  a  third  party  covenants  to 
be  responsible  for  the  performance  of  the  terms  and  conditions 
of  the  lease  on  the  part  of  the  lessee,  such  surety  becomes  re- 
sponsible immediately  upon  the  default  of  the  tenant  to  pay  his 
rent.  If  the  parties  to  the  lease  materially  alter  its  terms  the 
surety  is  released  from  all  liability. 

Power  to  Mortgage. 

It  is  provided  by  the  act  of  April  27,  1855,  that  every  lessee 
for  a  term  of  years  of  any  colliery,  mining  land,  manufactory 
or  other  premises  may  mortgage  his  lease  with  all  the  buildings, 
fixtures  and  machinery  thereon.  The  mortgage  must  be  acknowl- 
edged and  recorded  with  the  lease,  and  such  mortgage  will  not 
interfere  with  the  landlord's  rights,  priority  or  remedy  for  rent. 
Under  this  act  a  mortgage  will  bind  any  machinery  brought  into 
a  mill  or  factory  after  its  execution  and  recording. 

Sub-Leasing. 

There  is  an  important  distinction  between  an  assignment 
of  a  lease  and  underletting.  An  assignment  of  a  lease  is  where 
the  whole  term  is  transferred  by  the  tenant.  An  underletting 
is  where  a  tenant  transfers  less  than  his  whole  term.     Every 


REAL  ESTATE  AND  CONVEYANCING  141 

underlessee  becomes  tenant  to  the  lessee  who  grants  the  under- 
lease, and  not  tenant  to  the  original  lessor.  In  the  absence  of  any 
provision  in  the  lease  to  the  contrary,  a  tenant  may  either  assign 
or  sublet,  and,  as  we  observed  above,  a  covenant  not  to  assign 
is  not  broken  by  an  underletting.  As  long  as  he  holds  the  lease, 
an  assignor  is  personally  liable  for  the  payment  of  rent  to  the 
original  landlord. 

Upon  the  death  of  a  tenant  a  lease  will  vest  in  his  executors 
or  administrators  as  personal  property,  and  if  the  executors  or 
administrators  take  possession  of  the  premises  they  become  liable 
as  assignees. 

If  a  tenant  during  the  term  of  his  lease  makes  an  assign- 
ment for  the  benefit  of  creditors,  the  trustees  under  such  an 
assignment  may  make  such  use  of  the  lease  as  may  be  beneficial 
to  the  creditors.  The  landlord,  under  the  act  of  May  26,  1901, 
is  entitled  to  receive  out  of  the  proceeds  of  the  sale  of  any 
goods  upon  the  leased  premises  the  rent  due  him  at  the  time 
the  assignment  was  made  to  the  extent  of  one  year's  rent. 

Recovery  of  Possession  for  Non-Payment  of  Rent. 

A  landlord  is  g^ven  the  right  by  the  act  of  April  3,  1830,  to 
recover  possession  of  the  leased  property  for  non-payment  of 
rent.  If  the  tenant  shall  refuse  to  pay  rent  as  provided  in  the 
lease,  and  there  are  not  sufficient  goods  upon  the  premises  to 
pay  the  rent  in  arrear,  except  such  articles  as  are  exempt  from 
levy  and  sale  by  the  laws  of  this  Commonwealth,  the  landlord 
may  give  the  tenant  notice  to  vacate  the  premises  within  fifteen 
days  from  the  date  of  the  notice,  if  such  notice  is  given  between 
April  I  and  September  i,  and  within  thirty  days  if  notice  is 
given  between  September  i  and  April  i.  If  the  tenant  refuses 
to  vacate  and  deliver  up  the  premises  according  to  said  notice, 
the  landlord  may  make  complaint,  under  oath,  before  a  Justice 
of  the  Peace  or  Magistrate,  and  upon  averment  of  the  above 
facts  the  tenant  may  be  summoned  to  appear,  not  less  than  three 
nor  more  than  eight  days,  after  service  of  a  summons  and  answer 
the  landlord's  complaint.  The  Justice  of  the  Peace  or  Magistrate 
shall  then  hear  the  case,  and  if  it  appear  that  the  landlord's 
complaint  is  just  and  true,  judgment  is  entered  against  the 
tenant  that  the  premises  be  delivered  up  to  the  landlord,  and,  at 
the  request  of  the  landlord,  a  writ  of  possession  may  be  issued, 
directed  to  a  constable,  commanding  him  to  deliver  possession 
of  the  premises  to  the  landlord  and  levy  costs  on  the  tenant  (de- 
fendant).   The  tenant  may  at  any  time  before  the  writ  of  pes- 


142  REAL  ESTATE  AND  CONVEYANCING 

session  is  executed  pay  the  constable  the  rent  due  and  in  arrear, 
with  costs,  and  thus  retain  possession  of  the  premises.  The 
writ  of  possession  cannot  be  issued  until  five  days  after  the 
judgment  is  entered. 

In  the  city  and  county  of  Philadelphia,  the  landlord  is 
protected  by  the  act  of  March  25,  1825,  in  cases  where  a  tenant 
for  a  term  of  years  removes  from  the  premises.  If  such  a  ten- 
ant remove  without  leaving  sufficient  property  on  the  premises  to 
secure  the  payment  of  at  least  three  months'  rent,  or  shall  re- 
fuse to  give  security  for  the  payment  thereof  within  five  days 
after  demand  is  made  for  such  security,  and  shall  refuse  to 
deliver  up  possession  of  said  premises,  the  landlord  may,  upon 
making  affidavit  of  the  facts  before  a  Magistrate,  have  the  ten- 
ant summoned  to  appear,  not  less  than  five  or  more  than  eight 
days  after  service  of  said  summons,  and  answer  his  complaint. 
Upon  proof  of  the  facts  by  the  landlord,  judgment  will  be 
entered  in  his  favor  and  a  writ  of  possession  may  be  issued 
directing  a  constable  to  deliver  over  the  premises  to  the  landlord. 

Under  this  act  a  sub-tenant  is  entitled  to  the  right  of 
tendering  security  for  rent. 

The  important  subject  of  a  landlord's  right  to  distrain  for 
rent  will  be  considered  later  on. 

The  most  effective  remedy  provided  by  law  for  the  pro- 
tection of  a  landlord  is  the  right  of  distress,  which  right  has 
been  inseparably  connected  with  the  ordinary  relation  of  landlord 
and  tenant  since  the  feudal  ages. 

In  Pennsylvania,  distraints  for  rent  are  regulated  by  the 
act  of  March  21,  1772,  which  provides  substantially  as  follows: 
A  landlord  having  any  rent  in  arrear  or  due  upon  any  lease,  may 
distrain  upon  the  goods  located  on  the  leased  premises  pro- 
vided such  distress  be  made  during  the  continuance  of  the  lessor's 
title  or  interest.  Although  a  landlord  may  personally  distrain 
without  the  intervention  of  a  Constable  (a  Constable  not  being 
required  until  the  inventory  and  appraisement  shall  be  made), 
it  is  advisable  to  have  a  Constable  to  attend  to  the  matter  from 
the  beginning,  so  as  to  have  the  benefit  of  his  knowledge  and 
experience.  A  correct  statement  of  the  rent  due  should  be 
handed  to  a  Constable,  together  with  a  warrant  authorizing  him 
to  distrain.  In  distraining  for  rent,  interest  should  not  be  added 
to  the  rent. 

Goods  Liable  to  Distress. 

A  tenant's  cattle  or  stock  feeding  or  depasturing  upon  all 
or  any  part  of  the  leased  premises,  all  sorts  of  corn,  grass,  hops, 


REAL  ESTATE  AND  CONVEYANCINCT  143 

roots,  fruits,  pulse  or  other  product  whatsoever,  which  may  be 
growing  on  any  part  of  the  premises,  may  be  taken  and  seized 
as  a  distress  for  arrears  of  rent,  and  after  the  same  have  been 
appraised,  they  may  be  sold  in  satisfaction  of  the  rent  in  arrear, 
and  costs  of  distress  proceedings.  The  act  further  provides  that 
the  purchaser  of  such  corn,  etc.,  shall  have  free  egress  and 
regress  to  and  from  the  same  where  growing,  to  repair  the 
fences  from  time  to  time,  and  when  ripe,  to  cut,  gather  up  and 
carry  away  the  same,  in  the  same  manner  as  the  tenant  might 
legally  have  done  had  such  distress  never  been  made. 

With  the  exceptions  hereinafter  noted,  all  goods  located  on 
the  leased  premises  may  be  levied  upon  under  a  distraint  pro- 
ceeding for  the  collection  of  rent.  The  goods  of  a  stranger  on  the 
premises  and  those  of  a  sub-tenant  are  liable ;  also  goods  on  stor- 
age not  with  a  warehouseman,  and  goods  of  a  mere  renter  of 
rooms.  Such  fixtures  as  are  slightly  attached  to  the  premises, 
and  which  a  tenant  might  remove  at  his  pleasure,  would  also  be 
subject  to  a  landlord's  levy. 

Goods  Privileged  from  Distress. 

Unless  a  tenant  in  his  lease  has  waived  his  right  to  claim 
the  benefit  of  the  Exemption  law,  he  may  by  the  act  of  April  9, 
1849,  have  exempted  from  distress  for  rent  property  to  the 
value  of  $300  exclusive  of  all  wearing  apparel  of  the  tenant 
and  his  family,  and  all  Bibles  and  school  books  in  use  in  the 
family.  Implements  of  trade  in  actual  use,  chattels  delivered  to 
a  person  exercising  a  public  trade,  goods  which  cannot  be  re- 
stored again  in  the  same  condition  and  goods  in  the  custody  of 
the  law  cannot  be  distrained  upon. 

Furthermore,  if  property  is  placed  in  the  possession  of  a 
tenant  by  those  with  whom  he  deals  in  business,  such  property  is 
not  liable  to  distress  for  rent.  To  illustrate,  goods  on  storage 
with  a  warehouseman,  the  property  of  a  guest  at  a  hotel,  the 
goods  of  a  boarder,  grain  sent  to  a  mill,  cloth  in  a  tailor's  shop, 
and  goods  on  a  wharf. 

All  leased  or  hired  pianos,  melodeons  and  organs  are  by 
the  act  of  May  13,  1876,  exempt  from  levy  and  sale  on  execution 
and  distress  for  rent  due  by  such  person  or  persons  so  leasing 
or  hiring  the  same.  It  is  necessary,  however,  that  the  owner 
of  any  such  piano,  melodeon  or  organ,  or  his  or  their  agent,  or 
the  person  so  leasing  or  hiring  the  same,  shall  give  notice  to  the 
landlord  or  his  agent  that  the  piano,  etc.,  is  leased  or  hired.  The 
notice  required  under  the  provisions  of  this  act  should  be  given 


144  REAL  ESTATE  AND  CONVEYANCING 

to  the  landlord  when  the  instrument  is  delivered  to  the  tenant 
or  before  the  right  of  distress  has  accrued. 

Likewise  sewing  machines  belonging  to  seamstresses  are 
exempt  from  distress  by  the  act  of  April  17,  1869,  and  by  the 
later  statute  of  March  4,  1870,  any  sewing  machine  owned  by  a 
private  family  is  also  exempt. 

Proceedings  on  a  Distraint. 

When  a  landlord  has  distrained  upon  the  goods  contained 
on  leased  premises  the  tenant  or  owner  of  the  goods  distrained 
upon  must,  within  five  days  after  such  distress  and  notice  thereof, 
replevy  the  same  with  sufficient  security  according  to  law.  After 
distress,  notice  thereof,  and  the  expiration  of  said  five  days, 
the  landlord  must  have  the  goods  distrained  upon  appraised  by 
two  appraisers.  He  may  then,  after  six  days'  public  notice,  sell 
the  goods  and  chattels  so  distrained  at  the  highest  figure  that 
can  be  obtained  therefor. 

Penalties  for  Illegal  Distress. 

It  sometimes  happens  that  a  landlord  will  distrain  upon  a 
tenant's  goods  when  no  rent  is  in  arrear  or  for  more  rent  than 
is  actually  due. 

The  law  provides  that  if  a  landlord  distrains  and  sells  a 
tenant's  goods  when  it  shall  be  proven  that  no  rent  is  in  arrear, 
the  tenant  may  by  action  of  trespass  recover  double  the  value 
of  the  goods  or  chattels  so  distrained  and  Sold,  together  with  the 
full  costs  of  suit. 

The  rent  must  be  certain  or  that  which  can  be  made  certain, 
and  if  a  landlord  distrains  for  more  rent  than  is  due  he  renders 
himself  liable  therefor. 

The  law  has  a  high  regard  for  the  sanctity  of  a  man's  home, 
and  a  landlord  in  making  a  distraint  for  rent  is  not  allowed  to 
break  open  an  outer  door  to  a  residence  or  break  open  or  tear 
down  gates  or  inclosures  for  that  purpose;  but  if  a  door  or 
window  is  open,  the  landlord  may  enter,  and  when  once  in  may 
break  open  inner  doors. 

If,  after  having  made  the  distraint,  he  is  refused  admission, 
the  landlord  may  for  the  purpose  of  proceeding  with  the  dis- 
traint, break  open  an  outer  door,  but  must  avoid,  in  so  doing, 
a  breach  of  the  peace.  If  the  leased  property  is  used  for  busi- 
ness purposes,  where  everyone  having  business  to  transact  is 
invited  to  enter  by  lifting  a  latch  during  business  hours,  a  land- 


DEED 

Cl)i0  JnDentUtC,  Made  the 

day  of  in  the  year  of  our  Lord 

one  thousand  nine  hundred  and 

Bettoffn 


of  the  second  part:  l]JSlitnt&0tt^,  That  the  said  part  of  the  first 

part,  for  and  in  consideration  of  the  sum  of 

lauful  money  of  the  United  States  of  America,  well  and  truly  paid 
by  the  said  part  of  the  second  part  to  the  said  part  of  the 

first  part,  at  and  before  the  ensealing  and  delivery  of  these  presents, 
the  receipt  whereof  is  hereby  acknowledged,  granted,  bargained, 

sold,  aliened,  enfeoffed,  released,  conveyed  and  confirmed,  and  by 
these  presents  grant,  bargain,  sell,  alien,  enfeoff,  release,  convey 

and  confirm  unto  the  said  part  of  the  second  part,  heirs 

and  assigns, 


^OQtt^tt  with  all  and  singular,  the  buildings,  improvements, 
woods,  ways,  rights,  liberties,  privileges,  hereditaments  and  appur- 
tenances, to  the  same  belonging,  or  in  any  wise  appertaining,  and 
the  reversion  ami  reversions,  remaitulcr  and  remainders,  rents, 
issues  and  profits  thereof,  and  of  every  part  and  parcel  thereof: 
)2lnd  al0O,  a/2  the  estate,  right,  title,  interest, 

property,  possession,  claim  and  demand 
whatsoever,  both  in  law  and  equity,  of  the  said  part  of  the  first 

part,  of,  in,  and  to  the  said  premises,  with  the  appurtenances: 


^0  ^Siht  and  to  j^Old  the  said  premises,   with  all  and  singular 
the  appurtenances,  unto  the 

said  part  of  the  second  part,  heirs  and  assigns,  to  the 

only  proper  use,  benefit,  and  behoof  of  the  said  part         of  the 
second  part,         heirs  and  assigns  forever. 

Sinti  the  said  ^heirs, 

executors  and  administrators,  dO  by  these  presents,  covenant, 

grant  and  agree  to  and  with  the  said  part  of  the  second  part, 

heirs  and  assigns  forever,  that  the  said 

heirs,  all  and  singular  the  hereditaments  and 
premises  herein  above  described  and  granted,  or  mentioned  and 
intended  so  to  be,  with  the  appurtenances,  unto  the  said  part  of 
the    second   part,  heirs,    and   assigns,    against  the    said 

heirs,  and  against  all  and 
every  other  person  or  persons  whomsoever  lawfully  claiming  or  to 
claim  the  same  or  any  part  thereof. 

Shall  and  Will 

Warrant  and  forever  Defend. 

2ln  lMitnt&0  flflljereof,  the  said  part  of  the  first  part 

to  these  presents  hereunto  set        hand     and  seal        Dated  the  day 

and  year  first  above  written. 

SicneD,  SraleD  ann  DeltbereH 

IN  THE  PRESENCE  OP  US : 


TBitCttbtli,  the  day  of  the  date  of  the  above  Indenture,  of  the 
above-named 


State  of 
County  of 


day  of 


88. 


Anno  Domini  19     ,  before  me, 


personally  appeared  the  above-named 

and  in  due  form  of  law  acknowledged  the  above  JndfntUt^  to  be 
their  and  each  of  their  act  and  deed,  and  desired  the  same  might  be 
recorded  as  such;  and  the  said 

being  of  full  age,  and  separate  and  apart 
from  said  husband  by  ms  thereon  privately  examined,  and  the 

full  contents  of  the  above  Deed  being  by  me  first  made  known  unto 
did  thereupon  declare  and  say  that  did  voluntarily,  and 

of  own  free  will  and  oxcord,  sign,  seal,  and 

as  ad  and  deed,  deliver  the  above-written 

Indenture,  Deed,  or  Conveyance,  without  any 
coercion  or  compulsion  of  said  husband 

USiitnt0^  my  hand  and 
seal  the  day  and  year  aforesaid. 


HCCOCDCD  iT^  the  Office  for  Recording  of  Deeds  in  and  for 
in  Deed  Book  No. 

page  &c. 


(lfllittU00  my  hand  and  seal  of  Office  this 

day  of  Anno  Domini  19 


TRUSTEE'S  DEED 

CbilB!  JntlCntUte,  Made  the 

day  of  in  the  year  of  our  Lord 

one  thousand  nine  hundred  and 


of  the  one  part,  Grantor     ,  and 


of  the  other  part,  Grantee 
^\JCiiitTlt00tt^,  That  the  said  Grantor     for  and  in  consideration  of  the 
sum  of  lawful 

money  of  the  United  States  of  America,  unto  well  and 

truly  paid  by  the  said  Grantee      at  and  before  the  sealing  and  delivery 
of  these  presents,  the  receipt  whereof  is  hereby  acknowledged 

granted,  bargained,  sold,  aliened,  released  and  confirmed, 
and  by  these  presents 


grant,  bargain,  sell,  alien,  release 
and  conHrrti  unto  the  said  Grantee  and  Assigns 


.^OStt^tt  with  all  and  singular  the  improvements, 

ways,  streets,  alleys,  passages,  waters,  water-courses,  rights,  liberties, 
privileges,  hereditaments  and  appurtenances  whatsoever  thereunto 
belonging,  or  in  any  wise  appertaining,  and  the  Reversions  and 
Remainders,  Rents,  Issues  and  Profits  thereof;  and  all  the  estate, 
right,  title,  interest,  use,  trust,  property,  possession,  claim  and 
demand  whatsoever  of 


,  in 
law,  equity,  or  otherwise  howsoever,  of,  in,  and  to  the  same  and  every 
part  thereof 

%o  fiabe  and  to  liolli  the  said 

hereditaments    and    premises    hereby    granted,    or    mentioned    and 
intended  so  to  be,  with  the  appurtenances,  unto  the  said  Grantee 
and  Assigns,  to  and  for  the  only  proper  use 
and  behoof  of  the  said  Grantee  and  Assigns 

for  ever. 


Slnli  tfie  said 

do         by  these  presents,  covenant,  promise 
and  agree  to  and  with  the  said  Grantee  and 

Assigns,  that  the  said 

ha  not  done,  committed,  or  knowingly  or  willingly  svffered  to  be 

done  or  committed,  any  act,  matter  or  thing  whatsoever  whereby  the 
Premises  hereby  granted  or  any  part  thereof,  is,  are,  shall  or  may  be 
impeached,  charged  or  incumbered,  in  title,  charge,  estate,  or  other- 
wise howsoever. 


In  mUnt^a  m^ettot 


braird  ■nb  Brltnrrrd 

IN  THE  PRESENCE  OF  US: 


VUCfibtb  the  day  of  the  date  of  the  above  Indenture joj  the  above 
named  Grantee 

Witness  at  Signing:      1 


flDn  t!)t  day  of  Anno  Domini 

19        ,  before  me  the  subscriber,  personally  appeared 


SATISFACTION  OF  MORTGAGE 


State  of  ] 

County  of  j  ^^• 

i^noto  all  Open  ftp  tht^t  pteisentg.  That 

of  the  of  County 

of  and  State  of 

do  hereby  certify  that  a  certain  Indenture  of  Mortgage,  bearing  date 
the  day  of  ,  A.  D.  1       ,  made  and 

executed  by 

of  the  of  '  County 

of  and  State  of  to  secure 

the  payment  of 

DOLLARS,  and  recorded  in  the  office  of  the 
Recorder  of  Deeds,  etc.,  in  and  for  said  County  of 
in  Mortgage  Book  ,  Page  ,  on  the  day  of 

,A.D.l         ,  the  receipt  of  the  payment  thereof  and  satis- 
faction in  full  of  debt  and  interest  on  the  above-stated  Mortgage 
do  hereby  acknowledge.     And  do  by  these  presents  aidhorize  the 

Recorder  of  Deeds  in  and  for  said  County  oj  to  enter  satisfac- 

tion in  full  of  the  above-stated  Mortgage  and  discharge  the  same  from 
record. 

3n  ^ttn000  WSihtttoU       have  hereunto  set  hand    and 

seal    this  day  of  ,  A.  D.  19 


State  of  } 

County  of  ^  ss. 

in  and  for  said  County,  personally  came  the  above-named 

personally  known  to  me  to  be  the  person  named  in  and  who  executed 
the  above  instrument,  and  acknowledged  that  he  executed  the  same 
for  the  full  intent  and  purpose  therein  mentioned,  and  desires  the  same 
to  be  recorded  as  such. 

(lQIitnC00  my  hand  and  seal,  this  day  of       ,  A.  D.  19 


BOND 

i^noUi  all  a^en  tip  tbe^e  Pte0ent0,  Thai 

held  and  firmly  bound  unto 


in  the  sum  of 

lawful  mxmerj  of  the  United  States  of  America,  to  be  paid 
to  the  said 

certain  Attorney,  Executors,  Administrators  or  Assigns;    to  which 
paytnent  well  and  truly  to  be  made, 


Heirs,  Executors  and  Administrators, 
firmly  by  these  Presents.     Sealed  with 
Seal      Doled  the  day  of  in  the  year  of  our  Lord 

one  thousand  nine  hundred  and 

Ul)e  ConDition  ot  ti)i0  iDbligation  in  mc^*  That  if  the  above- 

bounden 


Heirs,  Executors,  Administrators,  or  any  of  them,  shall  and  do  well 
and  truly  pay,  or  cause  to  be  paid  unto  the  above-named 

certain  Attorney,  Executors,  Administrators  or 
Assigns,  the  just  sum  of 


without  any  fraud  or  further  delay;  then  the  above  Obligation  to  be 
void,  or  else  to  be  and  remairTin  full  force  and  virtue. 


draleO  anU  S)rltbrrcfi 

IN  TH£   PRESENCE   OF   US 


:} 


MORTGAGE 

tl[:U^  lnX}tnmtt^  Made  the 

day  of  in  the  year  of  our 

Lord  one  thousand  nine  hundred  and 

IBettoern 


of  the  other  part. 
l!B^ttta0,  the  said 

in  and  by  Obligation    or  Writing    obligatory  under 

hand    and  seal    duly  executed,  bearing  even  da.e  herewith 
stand  bound  unto  the  said 

in  the  sum  of 


without  any  fraud  or  further  delay,  as  in  and  by  the  said 
recited  Obligation    and  the  Condition    thereof,  relation  being  there- 
unto had  may  more  fully  and  at  large  appear. 

ilJoto  t^i0  Sndenture  toitiu00et|).  That  the  said 

as  well  for  and  in  considerati-on  of  the 
aforesaid  debt  or  sum  of 


and  for  the  better  securing  the  payment  of  the  same,  with  interest, 

unto  the  said  Executors, 

Administrators  and  Assigns,  in  discharge  of  the  said 

recited  Obligation     as  for  and  in  consideration  of  the  further  sum  of 

One  Dollar  unto  in  hand  well  and  truly  paid  by  the 

said 

at  and  before  the  sealing  and  delivery  hereof,  the  receipt  whereof  is 

hereby  acknowledged,  granted,  bargained,  sold,  aliened, 

enfeoffed,  released  and  confirmed,  and  by  these  presents 

grant,  bargain,  sell,  alien,  enfeoff,  release  arid  confirm  unto  the  said 

Heirs  and  Assigns, 


^OQtt^tt  with  all  and  singular 

Ways,  Waters,  Water-Courses,  Rights,  Liberties, 
Privileges,  Improvements,  Hereditaments  and  Appurtenances,  whair- 
soever  thereunto  belonging,  or  in  any  vrise  appertaining,  and  the 
Reversions  and  Remainders,  Rents,  Issues  and  Profits  thereof. 


Uo  fiabe  and  to  ^old  the  said 

Hereditaments  and  Premises  hereby  granted,  or 
mentioned  and  intended  so  to  be,  with  the  Appurtenances, 

unto  the  said 

Heirs  and  Assigns,  to  and  for  the  only  proper  use  and  behoof  of  the  said 

Heirs  and  Assigns  forever. 


Pcobibtb  aItDap0,  nevertheless,  that  if  the  said 

Heirs,  Executors,  Administrators  or 
Assigns,  do  and  shall  well  and  truly  pay,  or  cause  to  be  paid,  unto  the 
said  Executors,  Administrators  or 

Assigns,  the  aforesaid  debt  or  sum  of 

on  the  day  and 

time  hereinbefore  mentioned  and  appointed  for  payment  of  the  same, 
together  with  interest  as  aforesaid,  without  any  fraud  or  further  delay, 
and  icithout  any  deduction,  defalcation,  or  abatement  to  be  made  of 
any  thing,  for  or  in  respect  of  any  taxes,  charges  or  assessmerits 
whotsoever,  that  then,  and  from  thenceforth,  as  well  this  present 
Jntif  ntUtf.  and  the  estate  hereby  granted,  as  the  said 
recited  Obligation  shall  cease,  determine  and  become  void  any  thing 
hereinbefore  contained  to  the  contrary  thereof,  in  any  wise  notwith- 
standing. 

Jn  dOittUdcr  dOltirrrof .  the  said  part  of  the  first  part  to 

these  presents  hereunto  set  hand    and  seal    .     Dated 

the  day  and  year  first  above  written. 

dralrn  anli  Delibfrrn      '\ 

IN   THE    PRESENCE    OF    US:    )■ 


GENERAL   LEASE 

Cl)l0  InncntUte,  Made  the 

day  of  in  the  year  of  our  Lord 

one  thousand  nine  hundred  and 

Betto«n 

who         hereinafter  called  the  Lessor      and 

who  hereinafter  called 
the  Lessee  ,  tS!XitTltfi0tt^,  That'  the  said  Lessor  for  and  in 
consideration  of  the  payment  of  the  rent 

and  performance  of  the  covenants  and  agreements  hereinafter  men- 
tioned and  contained,  which  on  the  part  of  the  said  Lessee 
heirs,  executors,  administrators  and  ass'gns,  is  and  are  to  he  kept, 
done  and  performed,  demised,  leased  and  to  farm  let,  and 

by  these  presents  demise,  lease  and  to  farm  let,  unto  the 

said  Lessee  heirs,  executors,  administrators  and  assigns, 

Sili  t^at  CtttSin  Farm,  Messuage,  Tenement,  Tract  or  Piece  of 
Land  situate 


^0  l^abe  anH  to  |oId  the  said 

hereby  demised,  with  the  appurtenances, 
unto  the  said  Lessee  heirs,  executors,  administrators  and 

assigns,  from  the 

for  and  during  the  full  end  and  term  of 

from  thence  next  ensuing:  ^itWiinS  and  pa^lttS  therefor  and  there- 
out and  delivering  unto  the  said  _  Lessor  heirs  and 
assigns,  the  yearly  rent,  the  full                     part  of 


with  full  power  to  the  said  Lessor 
heirs  and  assigns,  to  recover  the  said  yearly  rent  hereby  reserved, 

in  the  same  manner  tliat  rents  du£ 
upon  leases  now  are,  or  hereafter  shall  be  by  law  recoverable,  with 
waiver  of  exemption  under  the  Act  of  April  9th,  1849,  or  other  acts 
of  exemption  subsequently  passed,  and  for  want  of  sufficient  distress 
to  satisfy  the  said  yearly  rent  and  the  charges 

of  levying  the  same,  then  and  in  such  case  it  shall  and  may  be  lawful 
for  the  said  Lessor  heirs  and  assigns,  into  and  upon  the 

said  hereby  demised  premises, 

wholly  to  re-enter,  and  therefrom  and  thereout  forthwith,  without  any 
further  legal  proceedings,  to  dis-possess  the  said  Lessee 
heirs,  executors,  administrators  and  assigns,  and  the  same  to  have 
again,  repossess  and  enjoy,  as  in  first  and  former  estate 

and  title  in  the  same,  and  as  though  this  Indenture  had  never  been 
made,  any  thing  hereinbefore  contained  to  the  contrary  notwithstanding. 
And  the  said  Lessee  heirs,  executors,  administrators  avvd 

assigns,  covenant,  promise  and  agree,  to  and  with  the  said 


Lessor  heirs  and  assigns,  by  these  presents,  that  the 

said  Lessee  heirs,  executors,  administrators  or  assigns,  shall 

and  mill  well  and  truly  pay  and  yield  and  render  the  said  yearly 
rent  hereby  reserved,  and  every  part  thereof,  to  the  said  Lessor 
heirs  and  assigns,  on  the  days  and  times,  and  in  the  quotas  and 
proportions   hereinbefore    mentioned   and   appointed  for   payment 
thereof,  without  any  fraud  or  further  delay, 

and  at  the  end  of  the  said  term,  quietly  and  peaceably  yield  up  and 
surrender  the  possession  of  tlie  said 
to  the  said  Lessor 


And  the  said  Lessor  heirs,  execiUors,  administrators  and 

assigns,  hereby  covenani,  promise  and  agree,  to  and  ui.th 

the    said   Lessee  heirs,    executors,    administrators    and 

assigns,   that  the   said   Lessee  heirs,   executors, 

administralors  or  assigns,  paying  the  said  yearly  rent,  in  manner 
aforesaid,  and  perjorming  the  covenants  and  agreements 

herein  on  part  contained,  shall  and  may  peaceably  and 

quietly  have,  hold,  occupy,  possess  and  enjoy,  the  said  demised 
premises,  with  the  appurtenances,  during  the  said  term,  without  any 
hindrance,  molestation  or  eviction  of  the  said  Lessor  heirs 

or  assigns,  or  of  any  person  or  persons  claiming  under 


And  the  said  Lessee       do       hereby  for  and  heirs, 

executors,  administrators  and  assigns,  covenant,  promise  and  agree 
to  and  with  the  said  Lessor  heirs,  executor s,  administrators 

and  assigns,  by  these  presents,  in  the  following  manner,  to  uit: 

That  will  thresh  out,  deliver,  and  place  the  said  Lesser 

share  (winter  and  summer)  03  soon  as  threshed  and  cleaned  in  such 
bins  as  Lessor  may  designate,  and  the  corn  as  soon  as  husked  in 
cribs  designated  and  shell  the  same  when  required  by  Lessor  . 

That  the  Lessee      mil  haul  the  Lessor      share  of  grain,  oats, 
com,  hay  and  other  products  of  the  farm,  and  unload  and  deliver  the 
same,  in  such  manner  and  to  such  person  and  at  such  place  or 
market,  as  the  said  Lessor      may  direct,  not  more  than 
miles  from  the  farm  withoid  charge. 

Thai         will  not  take  or  suffer  to  be  taken  from  said  premises, 
and  will  not  sell  or  give  away,  or  othcncise  dispose  of,  any  hay, 

straw  or  corn-fodder  upon  or  raised  on  said  premises,  nor  suffer 
the  same  or  any  part  thereof  to  be  taken  from  said  jn-emises  wiihmd 
consent  in  writing  by  Lessor  ,  but  shall  properly  use  up  the  same 
upon  said  farm;  that  the  right  of  property  in  the  whole  and  every 
part  of  said  crops  until  set  apart  and  din'ded,  bnd  of  the  manure, 
hay,  straw  and  corn-fodder  shall  be  absolutely  and  eTchiftivcly  in  said 
Lessor  heirs  and  assigns;    and  Lessee       shall  have  no  right, 

title  or  interest  in  or  pouter  or  control  over  said  manure,  hay,  straiv  and 
corn-fodder,  or  any  part  thereof,  except  to  apply  and  make  ttse  of 


the  same  upon  and  for  the  purpose,  use  and  advantage  of  said  farnif 
as  herein  provided,  or  as  may  be  directed  by  Lessor, 
pay  taoces,  state,  national  and  local,  except 

said  Lessee     shall  find  Timothy  seed  and  Clover 
seed         .  and  one  half  of  seed-grain 

said  Lessee      shall  have  acre   for 

exclusive  use  for  The  Lessee      shall 

haul  and  spread  manure,  haul  and  spread  lime 

The  Lessee     shall  repair,  rebuild  and  keep  up  fences  cutting 

and  hauling  the  rails 

the  Lessor      furnishing  the  posts  and  rails  for  entirely  new  fence, 

shall  not  rent  pasturage, 
nor  keep  more  than  horses,  cows 

keep  premises  in  good  order,  fence-rows,  ditches,  and  runs  cleaned 
up  and  clear. of  weeds  and  bushes,  and  drains  kept  open. 

The  Lessor  except  and  reserve  thereout  unto  heirs  and 
assigns,  the  full  and  free  right  and  liberty  of  entry  and  re-entry,  and 
of  ingress  and  regress  in,  upon,  into  or  through  said  premises,  and 
every  part  thereof,  at  any  and  all  times  during  said  term,  for  the 
purpose  of  superintending,  improving  or  mewing  the  same,  or  of 
directing  or  examining  the  work  or  the  condition  of  the  repairs  thereof, 
for  the  purpose  of  improving  or  amending  the  said  premises,  if  desired 
by  the  Lessor      ,  or  for  any  lawful  purpose  or  purposes  whatever. 

And  reserve  all  timber-trees,  with  full  and 

exclusive  right  to  enter  on  the  premises  for  cutting  or  hauling. 

'  And  reserve  room  sufficient  in  barn  and  farm  buildings  for  storage 
of  Lessor  share  of  crops,  with  the  right  of  access  for  the  purpose 
of  hauling  the  same  away. 

The  Lessee       shall  not  underlet  without  consent  in  writing. 

If  Lessee  shall  not  keep,  observe,  perform  and  fulfill  the 
conditions,  covenants  and  terms  of  this  lease,  then  it  shall  cease  and 
absolutely  determine;  and  any  attorney  may  immediately  thereafter 
as  attorney  for  said  Lessee  at  the  sole  request  of  the  Lessor  ,  sign  an 
agreement  for  entering  in  any  court  of  competent  jurisdiction,  an 
amicable  action  of  ejectment,  with  confession  of  judgment  therein, 
in  favor  of  the  said  Lessor  and  against  the  said  Lessee  ,  and  all 
persons  claiming  under  for  the  immediate  recovery  for  the 

said  Lessor  of  possession  of  the  hereby  demised  premises,  without 
any  stay  of  execution,  and  with  a  release  of  all  errors,  and  with  costs 
of  suit,  and  for  all  this,  this  shall  be  a  sufficient  warrant;  and 
thereupon  a  writ  of  Habere  Facias  Possessionem  may  issu£ 
forthwith  with  release  of  errors  in  all  proceedings  thereon,  or  con- 
cerning the  same;  and  the  Lessee  agree  that  no  writ  of  error, 
exception  or  objection  may  be  made  thereto.     No  such  determination 


of  this  lease,  or  taking  possession  of  the  premises  shall  deprive  the 
Lessor    of  any  action  against  the  said  Lessee   for  rent  or  damages. 

Jn  tDttnt0d  tO^tXtOt,  have  hereunto  set         hand      and 

seal      ,  the  day  of  ,  one 

thousand  nine  hundred  andj 

dralrli  anO  Drlibrrrn      ) 

IN  THE  PRESENCE  OF  f 


FORM  OF  WARRANTY  DEED 
used    in    Iowa,    Maine,    Massachusetts,    Nebraslca,    New 
Hampshire,  North   Carolina,  Ohio,  Oregon,  Rhode  Island 
and  Vermont. 

I&noto  all  Q^en  lip  tjcse  Pre0cnt0,  That  i,  ,  of 

,  in  the  state  of  ,  in  consideration  of 

dollars  to  me  paid  by 
of  ,  the  receipt  whereof  is  hereby  acknowledged,  do 

hereby  give,  grant,  bargain,  sell  and  convey  unto  the  said 

all  that  parcel  of  land  situate  in  said, 
and  bounded  as  follows,  etc. 

To  have  and  to  hold  the  granted  premises,  with  all  the  rights, 
easements  and  appurtenances  thereto  belonging,  to  the  said  , 

his  heirs  and  assigns,  to  his  arid  their  own  use  and  behoof  forever. 

And  I  do  hereby,  for  jnyself  and  my  heirs,  executors,  and  admin- 
istrators, covenant  with  the  said  grantee,  his  heirs  pnd  assigns,  that 
I  am  lawfully  seized  in  fee  of  the  granted  premises;  that  they  are  free 
from  all  inaimbrances;  that  I  have  good  right  to  sell  and  convey 
the  same  as  aforesaid;  and  that  I  will,  and  my  heirs,  executors,  and 
administrators  shall  warrant  and  defend  the  same  to  the  said  grantee, 
his  heirs  and  assigns,  forever,  against  the  lawful  claims  and  demands 
of  all  persons. 

And  for  the  consideration  aforesaid  I,  ,  of 

,  wife  of  the  said  ,  do  hereby  release  unto 

the  grantee  and  his  heirs  and  assigns  all  rights  of  or  to  both  dower 
and  homestead  in  the  granted  premises. 

]n  b)tttU0£(  \o\ttttOt,  trc,  the  said  and  , 

hereunto  set  our  hands  and  seals  this  ,         day  of  , 

19    . 


FORM  OF  QUITCLAIM  DEED 
used    in     Iowa,    Maine,    Massacliusetts,   Nebraska,    New 
Hampshire,  North  Carolina,  Ohio,  Oregon,  Rhode   Island 
and  Vermont. 

Cinoto  all  Q^en  bp  tl)e0e  jpregenw,  Thati  ,of 

,  in  the  state  of  ,  in  consideration  of 

dollars  to  me  paid  by  of  , 

the  receipt  whereof  is  hereby  acknowledged,  do  hereby  remise,  release, 

and  forever  quitclaim  unto  the  said  all  that  parcel  of 

land  situate  in  said  ,  and  bounded  as  follows,  etc. 

To  have  and  to  hold  the  grcmted  premises,  with  all  the  privileges 
and  appurtenances  thereto  belonging,  to  the  said 
and  his  heirs  and  assigns,  to  their  own  use  and  behoof  forever. 

And  I  do  hereby,  for  myself  and  my  heirs,  executors,  and 
administrators,  covenant  with  the  said  grantee  and  his  heirs  and 
assigns,  that  the  granted  premises  are  free  from  all  incumbrances 
made  or  suffered  by  me,  and  that  I  will,  and  my  heirs,  executors  and 
administrators  shall  warrant  and  defend  the  same  to  the  said  grantee 
and  his  heirs  and  assigns  forever  against  the  lawful  claims  and 
demands  of  all  persons  claiming  by,  through,  or  under  me. 

And  for  the  consideration  aforesaid  I,  ,  of 

,  wife  of  the  said  ,  do  hereby  release 

unto  the  said  grantee  and  his  heirs  and  assigns  all  rights  of  or  to  both 
dower  and  homestead  in  the  granted  premises. 

3n  USiitnt00  JSSi^tUOt,  we,  the  said  and  , 

hereunto  set  our  hands  and  seals  this  day  of  , 

19    . 

NOTICE  BY  TENANT  TO  LANDLORD 

In  ^ttlCifit  of  tj)e  POlUet  reserved  to  me  by  a  certain 
indenture  of  lease  bearing  date  on  the  day  of  , 

and  made  between  yourself  of  the  one  part  and  myself  of  the  other 
part,  and  whereby  the  premises  therein  demised  to  me  for  the  term 
of  twenty-one  years  from  the  day  of  , 

19  ,  are  determinable  as  therein  mentioned,  I  hereby  give  you 
notice  that  it  is  my  intention  to  determine  the  said  lease  at  the 
expiration  of  the  first  ^  years  thereof,  which  will  expire  on 
the  day  of  next,  on  which  day  I  shall 

quit  and  deliver  up  to  you  the  possession  of  the  buildings  and  lands 
tlierein  comprised. 


FARM  LEASE 

^bisi  JnDcnture,  Made  the 

day  of  A.  D.  one  thousand  nine  hundred  and 

T5tttDttn 

(hereinafter  called  the  Lessor  )  of  the  one  part, 
and 

(hereinafter  called  the  Lesse  )  of  the  other  part, 

U^itTlt&&tt^,  Thai  the  said  Lessor  for  and  in  consideration  of  the 
renin,  conriants  and  agreements  hereinafter  mentioned,  on  the  part  of 
the  Lessee  ,  to  be  paid,  kept  and  performed,  doth  by  these  presents, 
demise,  lease  and  to  farm  let,  unto  the  said  Lessee  ,  Siil  tf)St 

^0  ^abC  and  to  fjold  the  same  unto  the  said  Lessee  for  the  term 
of  commencing  on  the  day  of 

A.  D.  19  at  the  rent  or  sum  of 

to  be  paid  as  follows: 

Sititi  the  said  Lessee  as  security  for  the  payment  of  the  rent  falling 
due  under  this  lease,  hereby  grants,  bargains  and  sells  to  the  said 
Lessor     ,  all  stock,  farming   utensils   and   machinery, 

crops  and  other  personal  property  upon  said  demised  premises  during 
said  term,  and  should  default  be  made  in  the  payment  of  any  part  of 
said  rent  for  days  after  any  payment  thereof  shall  fall  due, 

the  said  Lessor  may,  at  his  option,  take  possession  of  said  stock, 
farming  utensils,  machinery,  crops  and  other  personal  property,  and 
sell  the  same  at  public  sale  on  five  days'  notice,  the  said  Lessee  hereby 
waiving  the  benefit  of  all  laws  exempting  the  same,  or  any  part  thereof, 
from  levy  or  sale  to  satisfy  the  said  rent  and  costs;  and  should  any 
of  the  said  goods  and  property  be  removed  from  said  premises,  the 
Lessor  may  follow  the  same  and  levy  upon  and  take  possession  wher- ' 
ever  found,  at  any  time  within  ninety  days  after  such  removal,  and 
proceed  to  sell  tfie  same  as  aforesaid,  to  satisfy  any  or  all  rent  that 
may  be  in  arrear,  together  with  necessary  costs  and  expenses. 

Sinti  the  said  Lessee  shall  not  and  will  not  at  any  time  or  times  during 
said,  term  sell,  remove,  give  away  or  otherwise  dispose  of  any  straw, 
fodder  or  manure 

which  may  be  upon  the  premises  at  the  commencement  of  said  term, 
or  which  shall  grow  or  be  grown,  produced  or  made  thereon  during 
the  continuance  thereof,  but  the  whole  of  said  straw,  fodder  and  manure 

shall  be  left  upon  the  said  premises  or  employed  in  the  improvement 
or  cultivation  thereof: 

It  is  further  agreed  that  the  Lessee  shall  plow,  break  up  and  farm  the 
following  fields,  to  unt: 

Sititi  the  Lessee  further  agfees  to  farm  and  till  the  said  demised 
premises  and  manage  the  sanw  in  a  good  and  husbandlike  manner; 


to  keep  in  good  repair  all  the  buildings  and  fences  thereon,  keep  from 
wilful  or  negligent  hurt  all  fruit,  ornamental  or  other  trees  or  plants 
on  said  premises,  destroy  all  noxious  weeds  from  time  to  time,  and  at 
the  end  of  said  term  deliver  up  the  same  in  like  good  order  and  con- 
ditions as  they  now  are  in,  reasonable  wear  and  tear  and  damage  by 
accidental  fire  or  unavoidable  accidents  excepted.  The  said  Lessee 
shall  have  free  of  charge  so  much  firewood  as  may  be  necessary  for 
family  u^e,  the  sam£  to  be  taken  from  such  fallen  timber  as  may  be 
suitable  for  that  purpose.  If  sufficient  fallen  timber  cannot  be 
found,  he  shall  cut  down  only  su^^h  trees  as  the  Lessor  may  point 
out;  and  such  other  timber  as  may  be  required  for  repairing  or  re- 
newing fences  or  buildings  shall  only  be  cut  after  the  Lessor  shall 
have  consented  to  and  selected  the  same. 

The  said  Lessee  shall  rwt  do  or  commit  or  willingly  suffer  to  be  done 
or  committed,  any  act,  matter  or  thing  whereby  or  in  consequence 
whereof  the  fire  insurance  on  the  demised  premises  shall  become 
avoided  or  suspended;  nor  shall  he  stiblet  the  demised  premises, 
or  any  part  thereof,  for  the  whole  or  any  part  of  the  term  aforesaid, 
vnthout  the  vyritten  consent  of  the  Lessor  first  had  and  obtained. 
All  covenants  and  agreements  herein  contained  or  agreed  to  be  kept 
or  performed  by  either  of  the  said  parties  hereto,  shall  extend  to  the 
heirs,  executors,  administrators,  successors  and  assigns  of  su£h  party. 

3n  dSlttnt^^  mi^tttot  the   said  parties  have   hereunto 
set  their  hands  and  seals  the  day  and  year  first  above  written. 

dralfU  ann  DrlibereU 

IN   THE    PRESENCE    OF    TJS: 


LANDLORD'S   QUIT   NOTICE 

You  are  hereby  notified  to  quit  the  premises  situate 

which  I  have  leased  to  you,  reserving  rent — ''or  pay  and  satisfy  the 
rent  due  and  in  arrear,"  being  S  which  amourd  was  due  on 

the  day  of  190        and  is  hereby 

demanded, — {you  having  neglected  or  refused  to  pay  the  amount  so 
reserved,  as  often  as  the  same  has  grown  due,  according  to  the  terms 
of  our  contract — and  there  being  rw  goods  on  the  premises  adequate 
to  pay  the  rent  so  reserved,  except  such  articles  as  are  exempt  from 
levy  and  sale  by  the  laws  of  this  Commonwealth)  within 
days  from  the  date  hereof,  or  I  shall  proceed  against  you  as  the  law 
directs. 

Yours,  etc 
To 


REAL  ESTATE  AND  CONVEYANCING  145 

lord  or  constable  may  enter  and  make  a  levy  or  distraint.  In 
the  case  of  a  dwelling  house  no  right  is  given  to  raise  a  latch 
on  a  closed  door,  as  this  act,  in  the  eyes  of  the  law,  is  as  much  a 
breaking  as  would  result  from  forcing  a  door  bolted  with  iron. 

The  landlord  or  constable  upon  entering  the  premises  makes 
a  seizure  of  such  goods  and  chattels  as  are  liable  for  rent,  of 
which  an  inventory  is  made.  No  actual  seizure  is  required,  it 
being  sufficient  if  notice  is  given  of  the  claim  for  rent,  and  the 
tenant  forbidden  to  remove  the  same  from  the  premises  until 
the  rent  is  paid. 

If,  after  goods  have  been  distrained,  they  are  removed  from 
the  premises,  the  guilty  party  is  liable  to  pay  treble  damages  and 
costs  of  suit  to  the  injured  party.  It  is  prudent  to  place  a  watch- 
man in  charge  of  goods  distrained  upon  to  prevent  their  re- 
moval. A  landlord  should  also  exercise  care  not  to  distrain 
on  more  goods  than  are  necessary  to  satisfy  his  claim  for  rent 
and  costs,  but  he  is  not  liable  for  a  slight  excess  or  error  in 
judgment. 

Tender  of  Rent. 

If  a  tenant,  upon  receiving  a  notice  of  the  distress  with  a 
copy  of  the  inventory,  decides  to  pay  his  rent,  and  stop  further 
proceedings,  he  must  observe  the  law  regulating  a  legal  tender  of 
money.  The  tenant  must  produce  and  offer  the  entire  amount 
due  in  money,  either  gold  coin  or  legal  tender  notes,  to  the  land- 
lord or  his  agent  authorized  to  receive  payment  of  the  same. 
It  should  be  borne  in  mind  that  bank  notes  are  not  a  good  legal 
tender,  and  silver  coins  less  than  a  dollar  are  not  legal  tender 
for  debts  in  excess  of  ten  dollars.  United  States  gold  coins  and 
notes  are  legal  tender.  The  offer  must  be  without  qualification  or 
condition.  These  observations  should  be  followed  to  make  legal 
a  tender  of  money  under  any  circimistances. 

The  tenant's  goods  should  not  be  sold  en  masse,  but  sepa- 
rately or  in  parcels,  so  as  to  obtain  the  best  price  in  order  to 
protect  the  tenant  against  a  sacrifice  of  values. 

We  referred  above  to  the  provisions  of  the  exemption  law, 
which  exempted  from  sale  on  an  execution  of  any  kind  the 
debtor's  goods  or  property  to  the  extent  of  three  hundred  dollars. 
This  beneficent  statute  cannot  be  claimed  by  a  sub-tenant  who 
occupies  part  of  the  premises  in  violation  of  a  lease  not  to  sub-let 
without  the  consent  of  the  landlord.  It  is  also  very  important 
to  note  that  a  corporation  or  partnership  cannot  claim  the  benefit 
of  the  exemption  law,  as  this  is  altogether  a  personal  privilege.  A 

10 


146  REAL  ESTATE  AND  CONVEYANCING 

claim    for   exemption   should  be    made  before  the   sale,    and 
preferably  before  the  advertisement  of  the  sale  is  posted. 

Distraint  of  Goods  Fraudulently  Removed. 

Sometimes  a  tenant  whose  rent  is  in  arrears  will  remove 
without  notice  to  his  landlord.  The  law  provides  that  should  a 
tenant  fraudulently  remove  his  goods  from  the  leased  premises 
with  intent  to  prevent  a  distraint,  the  landlord  may  within  thirty 
days  after  the  goods  are  removed,  follow  the  same  and  take  and 
seize  such  goods  wherever  they  may  be  found,  as  a  distress  for 
rent  in  arrears,  provided  that  the  goods  have  not  been  sold 
bona  fide  and  for  a  valuable  consideration  before  they  are  taken 
by  the  landlord.  If  the  goods  are  removed  in  the  night  time,  this 
fact  is  in  itself  sufficient  evidence  of  fraud.  Should  a  tenant 
merely  remove  his  goods  in  the  day  time,  his  rent  being  in 
arrear,  this  would  not  be  fraudulent,  as  a  tenant  is  not  bound 
to  give  notice  to  the  landlord  that  he  is  going  to  remove  his  goods. 

Any  goods  of  a  stranger  upon  the  leased  premises  may 
be  removed  any  time  before  levy,  and  a  landlord  has  no  legal 
right  to  follow  a  stranger's  goods. 

Apportionment  of  Rent. 

If  a  tenant  before  the  expiration  of  his  term,  and  also  before 
any  rent  is  in  arrear,  remove  his  goods  for  the  purpose  of  de- 
frauding his  landlord  of  the  right  of  distress,  the  landlord  may, 
by  the  act  of  March  25,  1825  (applicable  only  to  Philadelphia 
and  Pittsburg),  have  his  rent  apportioned  to  the  time  of  such  re- 
moval, and  follow  and  take  the  goods  as  a  distress  within  thirty 
days  from  such  removal.  To  avail  himself  of  this  right,  the 
landlord  must  make  oath  or  affirmation  that  he  believes  the  goods 
were  carried  away  for  the  purpose  of  defrauding  him. 

Besides  the  various  remedies  which  we  have  already  indi- 
cated, a  landlord  may  sue  his  tenant  for  non-payment  of  rent 
in  an  ordinary  action  of  assumpsit.  If  the  amount  of  rent 
claimed  is  less  than  one  hundred  dollars,  suit  is  brought  before 
a  Magistrate  or  Justice  of  the  Peace.  The  law  of  Pennsylvania 
gives  magistrates  in  cities  of  the  first  class  jurisdiction  in  cases 
of  contract  where  the  amount  demanded  does  not  exceed  one 
hundred  dollars.  In  other  portions  of  the  State  the  jurisdictional 
amount  of  a  Justice  of  the  Peace  is  three  hundred  dollars. 


REAL  ESTATE  AND  CONVEYANCING  147 

Recovery  of  Rent  in  Miscellaneous  Cases. 

Upon  the  death  of  a  tenant  the  landlord's  right  to  distrain 
ceases.  Rent  for  the  period  of  one  year  is  included  in  the  sec- 
ond class  of  debts  to  be  first  paid  out  of  a  decedent's  estate.  A 
landlord's  claim  for  rent  is  rot  required  to  be  paid  until  the  ex- 
piration of  a  year  after  letters  of  administration  have  been 
taken  out. 

Upon  the  bankruptcy  of  a  tenant,  a  landlord  is  permitted  to 
prove  a  claim  for  such  rent  as  was  actually  due  at  the  date  the 
petition  in  bankruptcy  was  filed. 

Tenant's  Liability  for  Taxes. 

The  act  of  April  19,  1883,  provides  that  in  cities  of  the 
first  class,  the  Receiver  of  Taxes  may  distrain  and  levy  upon 
and  sell  any  goods,  chattels  or  personal  property  found  on  any 
premises  on  which  taxes  are  delinquent.  When  the  goods,  chat- 
tels or  personal  property  of  any  tenant  is  levied  upon  under  the 
above  act,  the  Receiver  of  Taxes  is  authorized  to  proceed  with 
due  diligence  to  collect  the  same  from  said  tenant  to  the  amount 
of  rent  then  payable  to  the  owner  of  the  premises.  The  amount 
collected  by  said  Receiver  of  Taxes  shall  be  a  lawful  deduction 
from  the  rent  due,  and  in  the  event  of  the  refusal  of  any  landlord 
to  allow  of  said  deduction  to  said  tenant  on  account  of  rent,  then 
it  shall  be  the  duty  of  the  City  Solicitor  to  defend  the  said  ten- 
ant in  any  action  brought  by  the  landlord  for  the  recovery  of 
rent  due  ifrom  said  tenant.  It  is  further  provided  by  the  above 
act  that  a  tenant  shall  in  no  case  be  liable  to  pay  the  said  taxes, 
costs  and  charges  until  the  rent  shall  have  become  due  and 
payable,  and  the  Receiver  of  Taxes  cannot  follow  the  tenant's 
goods  if  same  are  removed  to  a  different  address. 

Mechanics'  Liens. 

The  property  of  a  landlord  is  not  liable  to  liens  for  repairs, 
alterations  or  additions  made  by  a  tenant,  without  the  written 
consent  of  the  landlord  or  his  agent,  and  notice  must  be  given 
the  landlord  or  his  agent  at  the  time  materials  are  furnished,  or 
work  done,  of  the  intention  to  file  a  lien. 

Surrender. 

If  a  tenant,  before  the  expiration  of  his  lease,  decides  to 
remove,  and  upon  paying  rent  to  date  of  removal  notifies  his 
landlord  of  his  intention  and  hands  over  the  keys  to  the  prem- 


148  REAL  ESTATE  AND  CONVEYANCING 

ises,  the  landlord  may  accept  the  surrender,  and  if  he  do  so, 
he  cannot  thereafter  maintain  any  claim  for  rent  for  the  balance 
of  the  term.  It  has  been  held  that  if  a  landlord  or  his  agent 
accept  the  keys  to  the  leased  premises  without  comment,  such 
silence  is  an  acquiescence  in  the  surrender.  If  a  tenant  sur- 
renders possession  of  the  premises  to  the  landlord,  the  latter 
must  declare  his  intention  of  holding  the  tenant  responsible  for 
future  rent,  if  such  is  his  purpose. 

Recovery  of  Possession  at  Expiration  of  Term. 

If  premises  have  been  leased  for  a  fixed  or  definite  term, 
and  the  tenant  holds  over  after  the  expiration  thereof,  a  land- 
lord may,  under  the  act  of  March  21,  1772,  give  the  tenant  three 
months'  notice  to  vacate.  If  the  tenant  should  refuse  to  deliver 
possession  the  landlord  may  bring  suit,  and  upon  proving  his 
ownership  of  the  premises,  the  leasing  thereof,  and  that  the 
tenant  refuses  to  deliver  possession  after  three  months'  notice, 
may  obtain  judgment  upon  which  a  warrant  will  issue  directing 
a  constable  to  deliver  possession  of  the  premises  to  the  land- 
lord. Notice  to  remove  before  the  expiration  of  the  term  is 
unnecessary  under  this  act.  But  if  the  premises  have  been  leased 
from  year  to  year  or  at  will,  a  landlord  to  recover  possession 
must  proceed  under  the  provisions  of  the  act  of  December  14, 
1863,  which  requires  the  landlord  to  give  the  tenant  three  months' 
notice  to  vacate  at  the  expiration  of  the  lease.  The  notice  to 
quit  must  be  given  three  months'  before  the  end  of  the  term, 
and  must  be  to  quit  at  the  termination  of  the  lease,  and  not  at 
some  other  date. 

If  a  lease  is  from  month  to  month,  thirty  days'  notice  to 
vacate  must  be  given  before  proceedings  may  be  begun  to 
dispossess  the  tenant. 

Unless  the  lease  requires  it,  a  tenant  is  not  bound  to  give 
any  notice  that  he  intends  to  remove,  but  practically  every  lease 
requires  that  the  tenant  give  notice.  A  verbal  notice  by  either 
party  is  sufficient,  but  it  is  advisable  to  give  the  notice  in  writing. 

Proceedings  to  Recover  Possession  in  Philadelphia  on  a  Lost 

Lease. 

If  a  landlord  desires  to  obtain  possession  of  leased  premises, 
but  has  lost  his  copy  of  the  lease  and  cannot  recall  when  the  term 
began  or  should  conclude,  he  may  give  notice  in  writing  to  thQ 
tenant  that  he  has  lost  his  lease  and  require  the  tenant  within 
thirty  days  from  the  time  of  service  of  such  notice  to  furnish 


REAL  ESTATE  AND  CONVEYANCING  149 

him  in  writing  with  the  date  at  which  the  tenancy  began.  If 
the  tenant  refuses  to  give  this  information  the  landlord  may  then 
give  the  tenant  three  months'  notice  to  quit  the  premises  occu- 
pied by  him,  and  may  proceed  thereafter  in  the  same  manner 
as  is  provided  in  case  of  the  usual  notice  to  quit  at  the  end  of 
the  term,  as  heretofore  indicated.  If  the  tenant  shall  make  affi- 
davit within  the  said  thirty  days  that  he  is  unable  to  comply  with 
the  landlord's  requirement,  the  latter  must  give  the  tenant  six 
months'  notice  to  remove.  This  right  to  recover  possession  where 
the  lease  has  been  lost,  which  is  conferred  by  the  act  of  Febru- 
ary 28,  1865,  is  limited  in  application  to  the  city  of  Philadelphia. 
Any  interference  with  the  tenant's  beneficial  enjoyment  of 
the  demised  premises  constitutes  an  eviction  at  law  on  the  part 
of  the  landlord,  and  the  tenant  would  thereafter  be  relieved  from 
liability  to  pay  rent.  So  zealously  does  the  law  guard  a  tenant's 
rights  in  this  regard  that  even  when  the  premises  have  been  de- 
stroyed by  fire  an  entry  by  the  landlord  for  the  purpose  of  re- 
building without  the  consent  of  the  tenant  will  amount  to  an 
eviction.  An  eviction  will  not  discharge  rent  due  prior  to  such 
eviction,  but  only  that  accruing  subsequent  thereto.  If,  however, 
a  tenant,  subsequent  to  an  eviction,  continues  to  pay  rent  without 
setting  up  the  eviction  as  a  defense,  such  fact  would  be  construed 
as  a  waiver  of  his  rights. 

Forcible  Entry  and  Detainer. 

The  statute  regulating  forcible  entry  and  detainer  has  a  very 
important  place  in  considering  the  rights  and  remedies  of  land- 
lords and  tenants.  The  act  of  March  31,  i860,  provides  that  "if 
any  person  shall,  with  violence  and  a  strong  hand,  enter  upon 
or  into  any  lands  or  buildings,  either  by  breaking  open  doors, 
windows  or  other  parts  of  the  house,  or  by  any  kind  of  violence 
or  other  circumstances  of  terror,  or  if  any  person,  after  entering 
peaceably,  shall  turn  out  by  force  or  by  threats  or  menacing  con- 
duct the  party  in  possession,  every  person  so  offending  shall  be 
guilty  of  a  forcible  entry,  and  on  conviction  shall  be  sentenced 
to  pay  a  fine  not  exceeding  five  hundred  dollars  or  undergo  an 
imprisonment  not  exceeding  one  year,  or  both  or  either  at  the 
discretion  of  the  Court,  and  to  make  restitution  of  the  lands  and 
tenements  entered  as  aforesaid."  To  constitute  the  crime  of  a 
forcible  entry  the  force  used  must  exceed  the  force  of  a  mere 
trespass;  the  circumstances  must  be  such  as  would  excite  terror 
and  result  in  a  breach  of  the  peace,  such  as  violence  offered  to  the 
person,  having  unusual  offensive  weapons,  of  being  attended  by  a 
multitude  of  people. 


I50  REAL  ESTATE  AND  CONVEYANCING 

A  landlord  has  no  right  to  expel  even  a  tenant  at  will  by 
force,  and  he  cannot  enter  with  a  strong  hand  after  the  expira- 
tion of  the  term  to  dispossess  a  tenant  with  force.  He  is  not 
permitted  to  assert  his  title  with  violence. 

As  a  protection  to  the  landlord,  the  law  goes  further  and 
says:  "If  any  person  shall,  by  force  and  with  a  strong  hand, 
or  by  menaces  or  threats,  unlawfully  hold  and  keep  possession 
of  any  lands  or  tenements,  whether  the  possession  of  the  same 
were  obtained  peaceably  or  otherwise,  such  person  shall  be  guilty 
of  forcible  detainer,  and  upon  conviction  thereof  shall  be  sen- 
tenced to  pay  a  fine  not  exceeding  five  hundred  dollars  or  to 
undergo  an  imprisonment  not  exceeding  one  year,  or  both,  or 
either,  at  the  discretion  of  the  Court,  and  to  make  restitution  of 
the  lands  and  tenements  unlawfully  detained  as  aforesaid; 
provided  that  no  person  shall  be  guilty  of  forcible  detainer  if  such 
person,  by  himself,  or  by  those  under  whom  he  claims,  has 
been  in  peaceable  possession  for  three  years  next  immediately 
preceding  such  alleged  forcible  detention." 

The  same  circumstances  of  violence  pointed  out  in  connec- 
tion with  forcible  entry  are  applicable  to  forcible  detainer.  In 
other  words,  the  landlord  in  taking  possession,  and  the  tenant  in 
keeping  possession,  must  not  be  guilty  of  acts  constituting  a 
breach  of  the  peace,  as  any  acts  of  violence  would  subject  the 
guilty  party  to  prosecution  under  the  above  Act  of  Assembly. 

It  must  be  borne  in  mind  that  a  tenant  who  holds  over 
after  the  expiration  of  his  term  is  not  a  trespasser,  but  he  has 
a  clear  right  to  maintain  possession  of  the  demised  premises 
until  he  receives  notice  to  quit. 

Negligence  as  to  Leased  Property. 

A  builder  who  erects  a  building  for  the  purpose  of  renting 
the  same  is  required  to  exercise  care  and  skill  in  its  erection, 
regard  being  had  to  the  purpose  for  which  it  is  designed.  Should 
a  landlord,  for  example,  lease  a  house  unfitted  for  the  purpose 
of  a  tenant,  as  for  heavy  storage,  he  will  be  liable  for  damages, 
unless  he  forbid  such  use  in  the  lease. 

If  a  landlord  has  taken  due  precaution  to  erect  and  maintain 
a  safe  building,  he  is  not  liable  for  defects  of  which  he  had  no 
'knowledge  or  reason  to  believe  existed. 

If  the  premises  are  in  good  repair  when  rented,  the  tenant 
is  liable  to  any  one  injured  in  or  about  the  premises  as  a  result 
of  the  tenant's  failure  to  repair.  To  illustrate,  if  there  is  an 
opening  in  the  sidewalk  of  leased  premises,  which  opening  is 


REAL  ESTATE  AND  CONVEYANCING  151 

covered  by  a  grate,  one  of  the  bars  of  which  has  been  broken 
during  the  term,  the  tenant,  and  not  the  landlord,  is  liable  for  in- 
juries sustained  by  a  person  falling  down  said  opening.  If  a 
tenant  should  allow  the  leased  premises  to  go  to  ruin  on  account 
of  failure  to  make  tenantable  repairs,  or  if  he  should  wilfully 
injure  the  premises,  he  is  guilty  of  waste,  and  the  landlord  may 
apply  to  the  Court  to  restrain  the  tenant  from  committing  waste. 

Liability  to  Repair  Sidewalk. 

The  owner  of  property  along  a  street  is  required  to  keep 
the  sidewalk  in  front  of  his  property  in  proper  repair,  and  upon 
failure  to  do  so,  such  owner  would  be  liable  for  any  injury 
resulting  therefrom. 

Mining  Leases. 

In  view  of  the  extensive  mineral  interests  of  Pennsylvania, 
the  subject  of  leases  could  not  properly  be  concluded  without 
a  few  brief  observations  concerning  leases  of  mining  property. 

In  Pennsylvania,  in  the  majority  of  instances,  land  is  leased 
for  the  purpose  of  obtaining  coal,  oil,  gas,  etc.,  therefrom,  the 
lessee  being  required  to  do  the  mining  or  drilling,  as  the  case  may 
be,  and  to  pay  to  the  landlord,  in  the  nature  of  rent,  a  certain 
proportion  of  the  products  taken  from  the  land,  called  royalties. 
It  is  customary  to  make  such  leases  for  a  term  of  years,  or  as 
long  as  minerals  may  be  taken  from  the  land  in  paying  quantities. 
A  right  to  dig  for  minerals  is  distinct  from  a  right  to  the  soil. 
It  is  very  common  in  every  part  of  the  State  where  coal  and  iron 
is  to  be  found  to  give  rights  to  mine  below  the  surface  of  the 
ground  separated  from  a  right  to  the  surface.  Such  a  grant 
confers  in  reality  a  mere  license  to  take  and  appropriate  the 
minerals  beneath  the  surface  and  no  property  vests  in  the  lessee 
until  they  are  taken  and  appropriated  by  him. 

It  is  well-settled  law  that  a  lease  giving  the  right  to  take 
out  all  the  coal  beneath  a  certain  surface  also  confers  the  right 
to  make  all  necessary  openings  to  reach  the  coal.  In  other 
words,  when  anything  is  granted  all  the  means  to  obtain  it  are 
granted. 

The  grant  of  oil  and  gas  privileges  cannot  be  of  oil  and 
gas  in  place,  as  in  the  case  of  a  grant  of  coal,  iron  and  other 
minerals. 

When  land  is  leased  for  the  purpose  of  drilling  and  operat- 
ing for  oil  and  gas,  the  lessee's  right  is  in  the  nature  of  an 


152  REAL  ESTATE  AND  CONVEYANCING 

easement  of  entry  and  examination,  with  a  right  of  possession 
arising  where  the  particular  place  of  operation  is  selected  for 
egress,  storage,  transportation,  etc.,  during  the  continuance  of 
operations.  The  actual  subject  of  possession  to  which  an  oil 
lessee  is  entitled  is  in  the  oil  and  gas  contained  in  the  land.  Where 
there  is  a  lease  of  the  exclusive  right  to  operate  for  oil  for  the 
term  of  ten  years,  such  a  grant  is  not  a  sale  of  the  oil,  but  only 
the  exclusive  right  to  operate  for  it  during  a  definite  term. 

If  the  consideration  of  a  mining  lease  is  the  payment  on 
the  part  of  the  lessee  of  a  minimum  royalty  for  a  limited  number 
of  years  the  fact  that  the  coal  is  exhausted  sooner  than  was 
anticipated  will  not  relieve  the  lessee  from  liability  to  pay  the 
minimum  royalty  agreed  upon. 

A  party  opening  a  coal  mine  in  the  ordinary  and  usual 
manner  may,  upon  his  own  lands,  drain  or  pump  the  water  which 
percolates  into  his  mine  into  a  stream  which  forms  the  natural 
drainage  of  the  basin  in  which  the  mine  is  located,  even  though 
the  quantity  of  water  is  increased  thereby  and  the  quality  so 
affected  as  to  render  it  totally  unfit  for  domestic  purpose  by 
the  lower  riparian  owners. 

A  manufacturer  of  coke  from  coal  purchased  by  him  from 
another  mine  owner  must  be  careful  that  the  smoke  and  vapors 
emitted  from  his  ovens  shall  not  substantially  injure  the  crops 
and  soil  of  an  adjoining  farm,  for  which  injury  he  would  be 
liable  in  damages. 

Directions  in  Renting  Property. 

In  concluding  the  subject  of  Landlord  and  Tenant,  it  will  be 
instructive  to  consider  a  few  precautions  which  should  be 
carefully  observed  in  leasing  a  property. 

In  the  first  place  the  premises  should  be  thoroughly  exam- 
ined. It  seems  unnecessary  to  call  attention  to  this  fact,  but  in 
a  leading  Pennsylvania  case  a  tenant  had  failed  to  notice  the 
defective  construction  of  the  drains,  and  having  been  advised 
by  his  physician  that  it  would  be  dangerous  to  remain  on  the 
premises,  he  removed  therefrom.  It  was  held  in  this  case  that 
the  defects  in  the  drainage  system  were  no  defense  to  a  claim 
for  rent. 

In  the  absence  of  a  provision  in  the  lease  that  the  landlord 
shall  make  repairs,  there  is  no  implied  covenant  that  the  landlord 
warrants  the  leased  premises  to  be  tenantable.  There  is  a  popu- 
lar impression  that  a  landlord  is  bound  to  conform  to  what  is  a 
general  practice  of  landlords,  in  repairing  and  keeping  the  rented 


REAL  ESTATE  AND  CON\^EYANCING  iS3 

property  in  good  condition.  This  impression  is  erroneous,  and 
trouble  and  expense  will  be  saved  by  clearly  setting  forth  in  a 
lease  the  mutual  obligations  of  a  landlord  and  tenant  concerning 
repairs. 

Careful  inquiry  should  be  made  of  the  landlord  as  to  every- 
thing a  tenant  desires  to  know  about  the  premises.  A  tenant 
desiring  to  lease  a  certain  property  for  the  purpose  of  conducting 
a  millinery  store  asked  the  landlord  about  the  condition  of  the 
bulk  show  windows  and  was  told  by  the  landlord  that  they  had 
new  roofs  and  were  in  perfect  condition.  As  a  matter  of  fact, 
the  roofs  of  these  windows  were  not  new  and  were  in  very 
bad  condition.  The  landlord  in  this  case  was  held  liable  for 
deceit. 

In  large  cities  there  are  plans  kept  showing  streets  opened 
and  unopened,  and  where  a  lease  is  contemplated  for  a  long  term, 
of  property  located  in  an  unimproved  neighborhood,  and  the 
lessee  contemplates  erecting  improvements,  the  lessee  should 
first  ascertain  whether  or  not  any  unopened  streets  on  the  city 
plan  are  made  to  run  through  the  premises,  and  what  effect  a 
subsequent  opening  of  such  street  would  have  upon  any  such 
improvements. 

If  a  tenant  intends  expending  a  considerable  sum  of  money 
for  improvements  he  should  carefully  examine  into  the  title  of 
his  prospective  landlord.  Of  course,  the  law  implies  a  covenant 
on  the  part  of  the  landlord  that  the  tenant  shall  have  undisturbed 
possession  of  the  demised  premises  during  the  term  of  the  lease, 
but  this  implied  covenant  may  be  a  very  insufficient  protection 
if  the  landlord  is  financially  irresponsible. 

A  tenant  should  also  ascertain  whether  there  are  any  charges 
or  encumbrances,  such  as  judgments,  municipal  claims  or  mort- 
gages unsatisfied,  which  might  result  in  a  sheriff's  sale  of  the 
premises  and  the  destruction  of  the  lease.  In  case  of  a  sheriff's 
sale  upon  a  prior  encumbrance,  the  purchaser  can  give  notice 
for  possession  and  break  the  lease. 

A  tenant  desiring  to  place  signs  on  the  walls  of  leased  prem- 
ises to  advertise  his  business  should  provide  for  such  right  in 
his  lease,  otherwise  this  right  could  be  denied  him.  If  a  tenant 
rents  a  floor  he  rents  the  inside  and  not  the  outside,  and  has 
no  right  to  put  out  a  sign  in  front  unless  the  landlord  consents. 

Similarly  if  it  is  desired  to  exhibit  a  show  case  at  the  street 
entrance  to  a  business  property,  this  privilege  should  be  stipu- 
lated in  the  lease.  In  a  certain  case  the  first  floor  of  a  property 
had  been  rented  to  a  merchant  tailor,  while  the  second  floor 


154  REAL  ESTATE  AND  CONVEYANCING 

was  rented  to  a  photographer,  who  placed  a  show  case  upon  the 
pavement  beside  the  merchant  tailor's  door.  The  Court  held  that 
all  that  any  of  the  tenants  had  was  an  uninterrupted  passageway 
in  common  with  the  public. 

Protection  in  Case  of  Fire. 

If  a  tenant  rents  only  a  floor  of  a  building  and  such  floor 
shall  be  wholly  destroyed  by  fire  or  other  casualty  without  his 
fault,  the  lease  would  thereupon  terminate  and  the  payment  of 
rent  cease.  This,  however,  is  not  the  case  where  a  tenant  rents 
the  entire  property,  as  previously  pointed  out.  It  should  be  pro- 
vided in  the  lease  that  should  the  premises  be  wholly  destroyed 
by  fire,  without  the  fault  or  neglect  of  the  tenant  or  of  his 
agents  and  servants,  the  lease  shall  become  void.  In  such  event, 
all  back  rent  and  the  current  rent  apportioned  up  to  the  date  of 
the  fire  may  be  recovered  under  the  terms  of  the  lease. 

If  the  premises  are  only  partially  destroyed  by  fire,  it  is 
well  to  have  a  provision  in  the  lease  that  the  landlord  shall  repair 
the  same  and  the  tenant  shall  not  be  liable  for  rent  during  the 
period  he  is  required  to  vacate  the  premises  while  the  repairs 
are  being  made.  If  the  tenant  during  repairs  is  deprived  of  only 
part  of  the  premises  he  should  be  allowed  a  just  proportion  of  the 
rent  for  the  parts  not  occupied  by  him  during  the  time  required 
for  repairing. 

Protection  of  Fixtures  in  Cases  of  Renewed  Leases. 

A  tenant  is  required  at  the  expiration  of  his  lease  to  re- 
move his  fixtures,  and  upon  his  failure  to  do  so,  they  become  the 
property  of  the  landlord.  If,  at  the  expiration  of  his  term,  a 
tenant  renews  his  lease  and  acquires  a  fresh  interest  in  the  prem- 
ises, he  should  take  care  to  reserve  the  right  to  remove  such 
fixtures  at  the  end  of  the  extended  term. 

Miscellaneous  Precautions. 

The  Act  of  Assembly  only  gives  the  landlord  the  right  to 
follow  and  distrain  upon  goods  within  thirty  days  in  cases  of 
clandestine  removal,  and  hence,  as  an  extra  security  to  the  land- 
lord, a  clause  should  be  inserted  in  the  lease  that  in  case  the 
tenant  shall  remove  his  goods  from  the  premises,  whether  clan- 
destinely or  otherwise,  they  may  be  distrained  upon,  wherever 
found,  within  thirty  days  after  removal. 

If  a  party  desires  to  lease  part  of  demised  premises  as 


i 


REAL  ESTATE  AND  CONVEYANCING  155 

a  sub-tenant,  he  should  first  obtain  the  written  consent  of  the 
paramount  landlord  and  secure  the  benefit  of  the  exemption  law. 

The  owner  of  property  who  has  placed  fire  insurance 
thereon  should,  in  leasing  the  same,  be  careful  to  forbid  such 
use  of  the  premises  by  a  tenant  as  would  affect  the  insurance. 
For  example,  a  property,  which  was  originally  occupied  by  a 
tenant  as  a  shoe  store,  was  changed  by  the  tenant  into  a  dry 
goods,  hardware  and  grocery  store,  in  which  a  keg  of  powder 
was  placed.  The  storage  of  gunpowder  and  the  occupation  of  a 
grocer  were  prohibited  by  the  fire  insurance  policy.  Fire  broke 
out  in  the  grocery  store  and  the  powder  exploded.  In  a  suit 
brought  by  the  landlord  to  recover  the  insurance,  the  Court 
held  that  the  fire  insurance  company  was  not  liable,  and  that 
it  was  immaterial  that  the  landlord  was.  ignorant  of  the  use  of 
the  premises  made  by  the  tenant.  Before  leasing  property  the 
landlord  should  see  that  the  business  of  the  proposed  tenant 
is  not  prohibited  by  the  policy  of  fire  insurance. 

It  will  be  recalled  that  our  digression  into  the  subject  of 
landlord  and  tenant  was  undertaken  in  connection  with  our  study 
of  rents,  one  of  the  three  classes  of  incorporeal  hereditaments 
of  present  importance  in  Pennsylvania,  to  wit,  commons,  ease- 
ments and  rents.  We  will  revert  to  the  subject  of  real  estate 
proper,  and  shall  consider  the  estates  and  interests  which  may  be 
had  in  "Things  Real,"  with  reference  to  (i)  quantity,  (2)  time 
of  enjoyment  and   (3)   number  and  connection  of  the  tenants. 

An  estate  we  have  defined  as  that  interest  which  a  tenant 
has  in  land,  tenements  and  hereditaments,  and  we  shall  consider 
estates  with  reference  to  their  quantity,  time  of  enjoyment  and 
the  number  and  connection  of  the  tenants. 

By  the  quantity  of  an  estate,  we  mean  the  time  the  interest 
of  a  man  in  lands,  tenements  and  hereditaments  shall  exist; 
that  is,  whether  the  interest  shall  be  held  by  a  man  during  his 
life  and  thereafter  pass  to  his  heirs,  or  whether  such  interest 
shall  be  limited  to  a  term  of  years.  Estates,  therefore,  are 
divided  into  (i)  estates  of  freehold  and  (2)  estates  less  than 
freehold. 

The  common  division  of  freehold  estates  are  into  those 
(i)  of  inheritance  and  (2)  those  not  of  inheritance,  such  as  an 
estate  for  life  only.  Again,  freehold  estates  of  inheritance  are 
divided  into  (i)  inheritance  absolute  and  (2)  inheritance  lim- 
ited. A  freehold  estate  of  inheritance  absolute  is  what  is  known 
as  an  estate  in  fee  simple,  with  which  every  real  estate  man 
should  be  familiar.    A  tenant  in  fee  simple  is  one  who  has  the 


156  REAL  ESTATE  AND  CONVEYANCING 

right  to  hold  lands,  tenements  and  hereditaments  for  himself  and 
his  heirs  forever.  The  word  "fee,"  like  the  word  "freehold," 
has  assumed  a  secondary  meaning,  so  that  the  technical  meaning 
of  the  word  in  modern  conveyancing  is  inheritance.  We  note, 
therefore,  that  by  an  estate  in  fee  is  meant  an  estate  of  inherit- 
ance. Now  a  fee  may  be  either  a  fee  simple  or  a  fee-tail.  A 
fee  simple  is  where  the  inheritance  is  to  descend  to  the  heirs  of 
the  tenant  without  condition  or  qualification.  The  word  simple 
is  usually  dropped,  as  an  estate  in  fee  is  ordinarily  understood  to 
be  an  estate  in  fee  simple. 

Originally  the  word  "heirs"  was  necessary  to  create  a  fee 
simple  by  conveyance.  A  deed  to  a  man  to  endure  as  long  as 
the  waters  of  the  Delaware  should  run  was  held  to  pass  a  life 
estate  only,  but  in  recent  years  this  rule  has  been  relaxed,  and  an 
estate  of  inheritance  frequently  passes  without  the  use  of  the 
word  heirs,  although  it  is  customary  to  use  the  word.  In  a 
deed  to  a  corporation,  instead  of  the  word  heirs,  the  words  suc- 
cessors and  assigns  should  be  used  to  indicate  the  quantity  of 
estate  conveyed.  A  conveyance  to  a  man  and  his  heirs  vests  an 
absolute  title  in  the  holder  of  the  lands.  The  heirs  of  said 
donee  have  no  estate  because  a  man  has  no  heirs  until  he  is  dead. 
Hence,  if  John  Doe  is  alive,  a  conveyance  to  the  heirs  of  John 
Doe  would  be  void  on  the  ground  of  uncertainty. 

The  principal  feature  of  an  estate  in  fee  simple  is  the 
power  of  the  owner  to  alien  or  transfer  the  same. 

There  is  a  certain  class  of  persons  who,  even  though  taking 
an  estate  in  fee  simple,  cannot  convey  it,  such  as  infants,  luna- 
tics and  habitual  drunkards,  but  this  is  due  to  personal  disability. 
Furthermore,  a  married  woman  cannot  convey  any  real  estate 
unless  her  husband  joins  in  the  deed.  Corporations  are  forbid- 
den to  hold  lands  unless  specifically  authorized  to  do  so  by  their 
charter.  In  Pennsylvania  an  alien  may,  by  statute,  take  and  hold 
by  devise  or  descent  any  quantity  of  land,  and  may  purchase  and 
hold  not  exceeding  5,000  acres. 

If  a  man  is  the  owner  of  land  in  fee  simple  he  may  do  with 
it  what  he  pleases,  subject  to  one  or  two  public  and  private 
limitations.  He  must  pay  such  taxes  as  are  duly  assessed  thereon, 
submit  to  police  regulations,  and  is  subject  to  the  right  of  the 
State  to  take  his  land  for  public  uses  under  the  doctrine  of 
eminent  domain,  of  which  more  hereafter. 

Moreover,  an  owner  of  land  in  fee  simple  must  so  use  his 
property  as  not  to  injure  that  of  another.  No  duty  is  owing  to  a 
trespasser  on  his  land,  and  if  one  enters  without  the  permission 


REAL  ESTATE  AND  CONVEYANCING  157 

of  the  owner  and  is  injured  he  could  not  recover  damages  from 
the  owner. 

Having  considered  the  nature  of  absolute  estates  of 
inheritance  or  estates  in  fee  simple,  which  is  the  largest  estate  a 
man  may  enjoy  in  things  real,  we  will  direct  our  inquiry  next 
into  limited  estates  of  inheritance,  which  are  of  two  kinds — ( i ) 
qualified,  base  or  determinable  fees,  and  (2)  conditional  fees, 
afterward  known  as  fees-tail. 

A  qualified  fee  is  one  subject  to  a  qualification  and  terminates 
when  the  qualification  is  at  an  end.  Such  an  estate  may  continue 
indefinitely,  but  is  liable  to  be  determined  by  some  act  or  event 
specified  in  the  grant.  To  borrow  an  old  illustration,  an  estate 
may  be  given  to  a  man  and  his  heirs  so  long  as  St.  Paul's  Church 
shall  stand.  Such  is  a  qualified  fee,  because  the  duration  of  the 
estate  depends  upon  some  circumstance  which  qualifies  it.  The 
owner  of  a  base  or  qualified  fee  has  the  same  rights  and  privi- 
leges as  the  owner  of  a  fee  simple,  but  he  cannot  transfer  any 
greater  estate  than  he  himself  enjoys. 

Conditional  Fees  (Fees-Tail). 

Passing  from  freehold  estates  of  inheritance,  both  absolute 
and  limited,  we  come  to  freehold  estates  not  of  inheritance,  such 
as  life  estates,  which  are  of  two  kinds,  (i)  Conventional,  or  those 
created  by  the  act  of  the  parties;  and  (2)  those  which  are 
created  by  the  operation  of  law. 

Ordinarily  the  words  used  in  conveying  a  life  estate  are 
"for  and  during  the  term  of  his  natural  life"  or  "for  life." 

Sometimes  an  estate  is  granted  during  the  life  of  a  third 
person,  as,  for  example,  a  grant  of  land  to  John  Doe  as  long  as 
Richard  Roe  lives. 

A  life  estate  may  be  qualified  or  determinable  the  same  as 
determinable  or  qualified  fees.  To  illustrate,  suppose  an  estate 
is  granted  to  Jane  Doe  "as  long  as  she  remains  unmarried,"  or 
as  long  as  she  resides  in  a  certain  place.  Such  an  estate  is 
known  as  a  qualified  or  determinable  life  estate,  for,  although 
it  may  exist  as  long  as  the  person  lives,  it  may,  nevertheless,  be 
ended  sooner  upon  the  happening  of  an  event  or  the  doing  of  an 
act. 

We  must  in  this  connection  carefully  distinguish  a  life  estate 
from  an  estate  for  years.  If  an  estate  is  granted  to  John  Doe 
for  the  period  of  one  hundred  years,  the  right  granted  is  not  a 
life  estate,  but  a  term  which  is  but  an  inferior  chattel  interest 
in  lands. 


158  REAL  ESTATE  AND  CONVEYANCING 

In  view  of  the  fact  that  there  are  others  who  have  rights 
in  the  land  after  him,  a  tenant  for  life  is  under  certain  restrictions 
regarding  his  possession  of  the  land,  A  life  tenant  is  prohibited 
from  committing  waste,  which  is  any  injury  done  to  real  property 
by  one  having  lawful  possession  thereof,  but  only  having  a  limited 
estate  therein.  There  are  two  kinds  of  waste,  (i)  Voluntary, 
which  is  an  act  of  commission,  and  (2)  Permissive,  which  re- 
sults from  omission  or  neglect.  A  tenant  for  life  of  land  is 
required  to  farm  it  in  a  husband-like  manner  so  as  not  to  cause 
it  to  deteriorate  in  value  to  such  an  extent  that  it  would  be 
unfitted  for  the  purpose  for  which  it  was  originally  intended  when 
the  life  tenant  came  into  possession. 

Concerning  the  right  of  a  tenant  for  life  cutting  down 
the  timber  on  his  land,  circumstances  must  govern  every  particu- 
lar case.  In  some  sections  of  Pennsylvania,  the  cutting  down 
of  timber  increases  the  value  of  the  tract,  while  in  other  parts 
it  decreases  the  value,  in  which  latter  case  waste  would  be 
committed  in  so  doing. 

The  law  will  not  permit  a  tenant  for  life  to  open  a  mine 
which  may  happen  to  be  on  his  property,  but  if  a  mine  has  been 
opened,  a  tenant  for  life  may  operate  such  mine  for  profit  until 
the  mineral  is  exhausted  without  committing  waste.  A  tenant 
for  life  cannot,  however,  go  through  an  old  opening  to  reach 
a  new  vein,  but  if  a  mine  has  been  already  opened  a  tenant  for 
life  upon  taking  possession  may  make  a  new  opening  to  reach 
all  the  mineral  in  that  particular  vein. 

A  tenant  for  life  is  liable  in  damages  for  failure  to  repair 
houses  and  fences  and  keep  the  property  in  good  condition.  A 
life  tenant  is  required  to  pay  interest  on  mortgages  and  all  taxes 
assessed  against  the  land,  but  is  not  bound  to  pay  off  the  principal 
of  any  encumbrance.  In  case  it  is  necessary  to  pay  off  an  encum- 
brance, a  tenant  for  life  may  be  compelled  to  contribute  in  pro- 
portion to  the  benefit  he  will  derive  by  not  having  to  meet  the 
annual  payments  of  interest  during  his  lifetime. 

Life  Estates  Created  by  Operation  of  Law. 

A  life  estate  may  be  created  by  operation  of  law  in  four  dif- 
ferent ways,  only  two  of  which  are  of  sufficient  importance  to 
discuss  in  a  course  of  this  character,  i.  e.,  a  husband's  curtesy 
and  wife's  dower. 

A  husband's  curtesy  is  that  interest  which  a  man  has  in  the 
lands  in  which  his  wife  has  an  estate  of  inheritance.    At  common 


REAL  ESTATE  AND  CONVEYANCING  159 

law  a  freehold  estate  in  his  wife's  lands  vested  in  the  husband 
upon  marriage,  which  lasted  during  their  joint  lives. 

By  the  act  of  April  8,  1833,  regulating  the  descent  of  prop- 
erty in  the  case  of  a  person  dying  intestate  (without  leaving  a 
will),  it  is  provided  that  if  a  married  woman  should  die  intestate, 
her  real  estate  shall  descend  as  thereinafter  provided,  "saving 
to  the  husband  his  right  as  tenant  by  the  curtesy  which  shall  take 
place,  although  there  be  no  issue  of  the  marriage  in  all  cases 
where  the  issue,  if  any,  would  have  inherited." 

An  absolute  divorce  destroys  the  right  of  curtesy,  but  a 
limited  divorce  will  not.  It  is  also  provided  by  statute  that 
if  a  husband  deserts  his  wife  or  refuses  to  provide  for  her  for 
one  year  or  more,  he  loses  his  claim  to  curtesy  in  his  wife's  real 
estate. 

Dower. 

Dower  at  common  law  is  a  life  estate  which  the  law  gives 
to  the  wife  after  the  death  of  her  husband.  Such  dower 
interest  is  limited  to  one-third  part  of  the  real  estate  which  her 
husband  was  possessed  of  at  any  time  during  the  marriage  for 
an  estate  of  inheritance. 

In  Pennsylvania,  to-day,  common  law  dower  can  only  exist 
in  cases  where  a  married  man  has  conveyed  real  estate  during 
his  lifetime  without  his  wife  joining  in  the  deed. 

Statutory  Dower. 

The  Legislature  of  Pennsylvania  has  made  certain  provi- 
sions for  widows  in  lieu  of  dower.  The  statute  provides  that  if 
a  man  dies  leaving  a  widow  and  issue,  the  widow  shall  be  entitled 
to  one-third  of  his  real  estate  for  the  period  of  her  life  and  to 
one-third  of  his  personal  estate  absolutely.  If  a  man  should 
die  leaving  a  widow,  but  no  issue,  the  law  gives  the  widow 
one-half  of  his  real  estate  for  life  and  one-half  of  his  personal 
estate  absolutely.  It  is  expressly  enacted  that  this  provision  for 
the  widow  shall  be  "in  lieu  and  full  satisfaction  of  her  common 
law  dower."  If  a  husband  makes  a  devise  or  bequest  to  his  wife 
of  any  portion  of  his  estate,  the  Pennsylvania  Statute  of  Wills 
provides  that  the  same  shall  be  deemed  and  taken  to  be  in  lieu 
and  bar  of  her  dower  in  the  estate  of  her  husband,  unless  the 
husband  shall  in  his  will  declare  otherwise.  A  widow  could, 
therefore,  either  accept  the  provision  made  for  her  by  her  hus- 
band's will,  or  she  could  elect  to  take  her  dower  interest  at  com- 


i6o  REAL  ESTATE  AND  CONVEYANCING 

mon  law.  It  will  be  readily  observed  that  under  such  conditions 
a  husband,  by  making  a  will,  could  cut  his  wife  out  of  all  in- 
terest in  his  personal  estate,  for  if  she  took  against  the  will,  her 
common  law  dower  would  vest  in  her  only  an  interest  in  land. 
The  act  of  April  ii,  1848,  commonly  known  as  the  Married 
Woman's  Act,  corrected  this  defect  in  the  law  by  providing  that 
a  widow,  in  case  she  elected  not  to  take  under  her  husband's  will, 
might  take  her  choice,  either  of  accepting  the  provision  made  for 
her  by  the  will  or  she  could  elect  to  take  her  share  of  her  hus- 
band's personal  estate  in  accordance  with  the  provision  of  the 
intestate  law. 

Subsequent  to  the  above  act  dower  could  be  claimed  under 
two  circumstances  only — (i)  where  the  husband  had  made  a  will 
which  the  widow  refused  to  take  under,  and  (2)  where  the 
husband  had  conveyed  lands  during  his  lifetime,  without  the  wife 
joining  in  the  deed.  But  by  the  act  of  April  20,  1869,  a  wife's 
dower  was  limited  to  the  latter  circumstance,  the  act  providing 
that  "in  case  any  person  has  died,  or  shall  hereafter  die,  leaving 
a  widow  and  a  last  will  and  testament,  and  such  widow  shall  elect 
not  to  take  under  the  will,  in  lieu  of  dower  at  common  law,  as 
heretofore,  she  shall  be  entitled  to  such  interest  in  the  real 
estate  of  her  deceased  husband  as  the  widows  of  decedents  dying 
intestate  are  entitled  to  under  the  existing  laws  of  this 
Commonwealth." 

It  was  pointed  out  before  that  the  owner  of  land  owned  not 
only  the  surface  of  the  ground,  but  all  above  and  beneath 
indefinitely.  Such  is  known  as  land  natural.  It  is  an  old  rule  of 
the  common  law  that  everything  affixed  to  land  becomes  part  of 
the  land,  as,  for  example,  trees,  fences,  houses,  etc.  Conversely, 
whatever  is  separated  from  land  loses  its  character  as  land.  Clay 
and  limestone  are  land,  but  dug  up  and  made  in  the  form  of 
bricks  and  lime  become  chattels. 

The  principal  exception  to  the  above-stated  rule  is  furnished 
in  the  case  of  fixtures.  A  chattel  attached  to  land  is  called  a 
fixture,  and  it  is  very  important  to  know  under  what  circum- 
stances a  fixture  is  to  be  regarded  as  a  part  of  land  and  when  as 
personal  property. 

If  the  old  maxim  of  the  law  to  the  effect  that  everything 
affixed  to  land  became  land  were  literally  applied,  every  chattel 
or  fixture  attached  to  real  estate  would  be  transformed  into 
realty.  Such,  however,  is  not  the  case.  As  was  said  by  a 
Justice  of  the  Supreme  Court  of  Pennsylvania,  in  a  leading  case, 
whether  or  not  a  fixture  is  to  be  regarded  as  real  estate  or 


REAL  ESTATE  AND  CONVEYANCING  i6i 

personal  properly  depends  more  upon  the  intention  of  the  party 
who  constructed  the  fixture  than  u^x^n  mere  physical  attachment. 
In  determining  this  question  the  fact  to  be  established  is  whether 
it  was  intended  to  make  the  chattel  a  permanent  part  of  the 
freehold,  or  merely  a  temporary  arrangement. 

The  intention  of  the  party  making  the  annexation  is 
presumed  from  the  nature  of  the  article  annexed,  the  relation 
of  the  party  making  the  annexation,  the  manner  of  annexation, 
and  the  use  of  it. 

It  has  been  held  that  gas  fixtures  and  heaters  are  not  fixtures 
to  be  included  as  part  of  the  real  estate  to  which  they  are 
attached.  Gas  fittings,  on  the  other  hand,  are  fixtures  which  are 
part  of  the  real  estate.  As  a  general  rule,  the  machinery  in  a  mill 
or  factory  is  real  estate,  and  passes  upon  a  sale  of  the  factory.     ♦ 

Ordinarily  the  question  whether  or  not  a  certain  annexation 
is  a  fixture  and  whether  a  right  to  remove  the  same  exists,  arises 
upon  a  change  of  title  of  possession  of  property. 

Consequently  the  parties  between  whom  this  question  of 
fixtures  may  arise  are  (i)  heirs  and  executors,  (2)  vendors  and 
vendee,  (3)  mortgagor  and  mortgagee,  (4)  landlord  and  tenant, 
and  (5)  life  tenant  and  remainderman,  repectivcly. 

A  fixture  to  remain  personal  property  must  be  of  such  a 
nature  that  it  can  be  removed  without  doing  permanent  injury  to 
the  freehold. 


Exceptions. 

Certain  exceptions  exist  in  the  case  of  a  landlord  and  tenant, 
relative  to  the  right  to  remove  fixtures,  which  apply  to  cases  of 
trade  fixtures,  or  such  articles  as  are  necessary  to  carry  on  a 
particular  trade ;  agricultural  fixtures,  and  domestic  fixtures,  such 
as  are  attached  to  dwelling  houses  as  a  means  of  convenience 
and  comfort.  The  above-named  classes  of  fixtures  may  be 
removed  by  the  tenant,  but  must  be  done  in  such  a  way  as  not 
to  injure  the    freehold. 

In  this  connection  it  is  of  interest  to  those  living  in  farming 
districts  to  consider  the  law  regarding  emblements,  which  is  the 
term  applied  to  the  right  of  a  tenant  to  take  and  carry  away  corn 
or  other  crops  produced  by  his  labor,  after  his  term  has  expired. 
The  law  of  Pennsylvania  provides  that  a  tenant  has  the  right  and 
title  to  the  "way-going"  crop.  That  is,  where  a  tenant  whose 
term  expires  in  the  spring  of  the  year,  plants  winter  grain,  which 
does  not  mature  until  the  following  summer,  said  tenant  may 

11 


i62  REAL  ESTATE  AND  CONVEYANCING 

return  after  his  term  has  expired  to  cut  and  take  his  crop  away. 
The  tenant  may  sell  his  way-going  crop  as  personal  property. 
In  the  case  of  trees,  which  are  not  produced  annually,  they 
are  part  of  the  real  estate  and  pass  in  a  conveyance  of  land  within 
the  boundaries  of  which  the  entire  trunk  is  located.  An 
adjoining  land  owner  may  cut  out  the  roots  or  cut  off  so  much 
of  the  branches  as  projects  over  his  land.  However,  the  fruit 
of  such  extending  branches  belong  to  the  owner  of  the  trunk.  A 
tree  is  common  property  if  the  trunk  of  the  tree  is  on  both  sides 
of  the  boundary  line.  Trees,  of  course,  become  personal 
property  as  soon  as  they  are  cut  down. 

Land  is  divided  both  horizontally  and  perpendicularly.  A 
man  may  sell  the  timber  on  his  land  to  another  and  the  minerals 
beneath  it  to  a  third,  and  reserve  the  surface  for  himself. 

The  perpendicular  division  of  land  involves  the  question  of 
boundary  lines,  to  which  it  will  be  instructive  to  advert  briefly. 

Boundaries  to  land  may  consist  of  imaginary  lines  upon  the 
surface  of  the  earth,  or  of  material  and  visible  objects,  such  as 
fences,  roads  and  streams  of  water. 

If  a  navigable  river  constitutes  a  boundary  line,  the  title  of 
the  land-owner  extends  to  low  water  mark,  subject  to  the  right 
of  the  public  to  use  the  stream  for  purposes  of  navigation. 

In  cases  where  land  is  bounded  by  an  unnavigable  stream 
the  title  of  the  owner  extends  to  the  middle  of  the  stream. 
When  an  unnavigable  stream  changes  its  channel  the  title  of  the 
adjacent  land-owners  follows  the  change,  but  where  the  change 
is  sudden  the  ownership  remains  according  to  the  former  bounds. 
If  a  stream  should  change  its  channel  and  make  an  entirely  new 
one  in  the  land  of  the  owner  on  one  side,  he  will  become  owner 
of  the  whole  river,  so  far  as  it  is  inclosed  by  his  land. 

In  connection  with  the  subject  of  boundary  lines,  let  us 
consider  briefly  the  law  applicable  to  party  walls.  A  land  owner 
about  to  construct  a  building  thereon  may  place  the  dividing  wall 
between  him  and  the  adjacent  land-owner  equally  upon  the  land 
of  each.  Such  a  wall  will  be  a  party  wall  if  any  part  of  it  is  over 
the  boundary  line.  Unless  a  wall,  foundation  and  all  be  wholly 
within  the  boundary  line  of  the  builder,  it  will  be  a  party  wall 
subject  to  the  restrictions  regulating  the  same.  Originally  the 
right  of  the  builder  of  a  party  wall  to  be  compensated  by  the 
adjoining  land-owner  for  the  use  of  so  much  of  the  wall  as  was 
erected  on  his  land,  was  held  to  be  a  right  to  a  sum  of  money  and 
therefore  personalty,  and  would  not  pass  to  a  purchaser  on  a 
sale  of   the   building  of   which   the   party  wall    formed   part. 


REAL  ESTATE  AND  CONVEYANCING  163 

Subsequently  an  act  was  passed  in  Pennsylvania  providing  that 
the  right  to  the  party  wall  or  to  compensation  for  it  should  pass 
to  the  purchaser  on  a  conveyance  of  the  building,  thus  making 
this  right  real  estate. 

Hereditaments.  _ 

The  term  hereditament  which  is  employed  in  every  deed  to 
real  estate,  should  be  clearly  understood.  Hereditaments,  includ- 
ing whatever  rights  may  be  inherited,  are  divided  into  corporeal 
hereditaments  and  incorporeal  hereditaments.  Corporeal 
hereditaments  consist  of  "land,  structures  thereon  and  fixtures 
thereto,"  being  rights  to  things  visible  to  the  senses.  We  have 
emphasized  the  significance  of  the  term  land  and  indicated  the 
manner  in  which  it  is  divided.  Let  us  next  turn  our  attention 
to  incorporeal  hereditaments  which  have  been  defined  to  be 
"rights  issuing  out  of,  annexed  to  or  exercisable  within  land." 
Incorporeal  hereditaments  are  principally  of  ten  sorts:  Advow- 
sons,  tithes,  commons,  ways,  offices,  dignities,  franchises,  corodies 
or  pensions,  annuities  and  rents.  Passing  over  those  which 
are  obsolete,  we  will  limit  our  inquiry  to  those  of  present  day 
importance  to  a  real  estate  man,  namely,  commons,  ways  or 
easements,  and  rents. 

A  right  of  common  is  that  estate  which  one  man,  or  many 
men,  may  have  in  the  land  of  another.  In  reality  it  is  a  special 
privilege  annexed  to  the  land  and  passes  by  the  conveyance  of 
the  land  to  which  it  is  attached. 

Rights  of  common  are  of  four  kinds :  A  common  of  pasture 
is  the  right  to  pasture  cattle  on  the  lands  of  another.  A  common 
of  piscary  is  the  right  given  to  fish  in  the  streams  located  on 
another  man's  land.  A  common  of  turbary  is  the  right  to  take 
soil  or  mine  coal  on  another's  land.  A  common  of  estovers  is  the 
right  to  take  timber  from  the  land  owned  by  another.  Such 
rights  are  incorporeal  hereditaments,  that  is  such  rights  as  may 
be  inherited,  although  intangible.  Originally  these  rights  were 
established  by  long  continued  usage  or  custom,  but  later  by 
special  grant  in  a  deed.  Such  rights  of  common  as  now  exist 
rest  upon  grant,  either  express  or  implied.  Many  cities  and 
towns  have  large  tracts  of  land  appropriated  to  public  use  known 
as  town  squares  or  "commons."  The  original  owners  of  such 
land  cannot  reclaim  the  same  after  it  has  been  accepted  by  the 
public. 

An  easement  has  been  defined  to  be  "a  liberty,  privilege  or 


i64  REAL  ESTATE  AND  CONVEYANCING 

advantage  in  land,  without  profit,  existing  distinct  from  an 
ownership  in  the  soil."  A  right  of  common  confers  the  privilege 
of  consuming  land  so  as  to  receive  profit  therefrom.  The 
distinguishing  feature  of  an  easement  is  that  it  gives  the  right 
to  use  lands  without  consuming  it,  i.  e.,  with  no  profit.  For 
example,  a  private  roadway  over  the  land  of  another  is  an 
easement.  The  most  common  illustrations  of  easements  are  (i) 
ways,  (2)  water-courses  and  other  water  rights,  (3)  lateral 
support,  (4)  drain  and  drip,  (5)  burial  lots  and  pews,  and  (6) 
light  and  air. 

A  right  of  way  is  the  right  which  confers  on  one  or  more 
persons  or  the  public  the  privilege  of  passing  over  the  land  of 
another;  where  this  right  exists  in  favor  of  one  or  more 
individuals  it  is  known  as  a  private  right  of  way;  if  the  right  is 
enjoyed  by  the  public  generally  it  is  a  public  right  of  way.  There 
are  footways  and  carriageways,  and  a  right  of  way  granted  to  an 
individual  will  not  authorize  the  passage  of  horses  and  cattle  over 
the  way.  Streets,  roads,  navigable  rivers  and  many  private 
streams  so  declared  by  statute  are  public  highways.  Practically 
every  creek  in  Pennsylvania  sufficiently  large  to  float  logs  has 
been  declared  a  highway. 

With  the  exception  of  navigable  rivers,  the  title  of  the  owner 
of  land  goes  to  the  middle  of  all  highways;  the  owner  cannot, 
however,  deprive  the  public  of  their  right  of  way  over  said 
highway.  The  owner  of  land  along  a  public  river  may  build 
wharves  upon  it,  subject  to  legislative  control. 

Ways  of  Necessity. 

Jn  cases  where  certain  land  is  granted  which  is  either 
entirely  or  partially  surrounded  by  land  of  the  grantor,  and  the 
grantee  has  no  way  out  of  his  land  except  through  the  land  of 
the  grantor,  the  law  presumes  that  a  right  of  way  was  granted. 
Such  are  known  as  ways  of  necessity. 

Public  ways  must  be  kept  in  repair  by  the  township,  borough 
or  city,  and  any  neglect  of  this  duty  renders  the  municipal  cor- 
poration liable  in  damages  to  any  one  injured.  A  town  or  city  is 
not  liable  for  any  accident  due  to  the  faulty  condition  of  a  foot 
pavement;  the  owner  of  the  house  which  fronts  on  the  pavement 
is  liable  in  such  case,  but  if  the  house  is  occupied  by  a  tenant  such 
tenant  becomes  liable. 

The  owner  of  the  land  through  which  a  private  right  of  way 
exists  must  keep  such  way  in  good  condition. 

During  the  middle  ages  the  occupation  of  agriculture  was 


REAL  ESTATE  AND  CONVEYANCING  165 

thought  to  be  beneath  the  dignity  of  a  gentleman.  Consequently 
holders  of  freehold  estates  would  allot  certain  portions  of  their 
lands  at  will,  for  which  they  received  in  return  a  portion  of  the 
crops  which  such  land  yielded.  Gradually  those  who  tilled  the 
soil  acquired  an  indefeasible  right  to  the  possession  of  the  land 
for  a  definite  period  of  time,  which  became  in  reality,  an  estate 
in  the  land,  but  which,  of  course,  was  less  than  a  freehold. 

There  are  four  qualities  of  estates  less  than  freehold:  (i) 
estates  for  years;  (2)  tenant  from  year  to  year;  (3)  tenant  at 
will,  and  (4)  tenant  at  sufferance.  As  we  have  already  discussed 
the  first  two  classes  in  connection  with  the  subject  of  landlord 
and  tenant,  it  will  only  be  necessary  to  distinguish  the  latter  two 
classes  of  estates  less  than  freehold. 

Tenant  at  Will. 

Although  the  Courts  will  always  endeavor  to  so  construe  a 
lease  as  to  give  the  tenant  the  benefit  of  a  definite  time,  estates 
at  will  may  and  do  exist,  which  arise  in  cases  where  one  man 
leases  lands  to  another  to  have  and  to  hold  at  will  of  the  lessor. 
The  lessee  is  a  mere  tenant  at  will,  for  the  landlord  may 
dispossess  him  at  any  time  he  so  desires. 

In  cases  of  a  tenancy  at  will,  the  tenant  is  under  no 
obligation  to  stay,  and  may  leave  when  he  pleases  the  same  as  a 
landlord  may  enter  when  he  pleases.  A  tenant  at  will  cannot 
assign  his  estate,  and  is  bound  not  to  commit  any  voluntary 
waste,  but  is  not  liable  for  permissive  waste,  as  is  the  case  of 
a  tenant  for  years. 

A  tenant  at  sufferance  is  one  who  acquires  possession  of 
land  lawfully  and  holds  it  afterward  without  any  title.  He 
has  no  right  of  possession  nor  any  estate  in  the  land,  but,  never- 
theless, is  not  a  trespasser. 

Estates  upon  Condition. 

Frequently  an  estate  in  lands  is  made  to  depend  upon  the 
happening  or  not  happening  of  an  uncertain  condition.  Such 
estates  are  known  as  estates  upon  condition,  either  implied  or 
express.  It  is  important  to  distinguish  between  a  condition  in  a 
deed  and  a  covenant.  Where  it  is  provided  that  an  estate  shall  be 
either  created,  enlarged  or  destroyed  upon  the  happening  of  a 
specified  event,  such  a  proviso  is  a  condition,  upon  the  breach 
of  which  the  estate  terminates.  A  covenant  is  an  agreement 
under  seal,  and  upon  breach  of  a  covenant  the  estate  will  not  be 


i66  REAL  ESTATE  AND  CONVEYANCING 

forfeited,  the  only  remedy  to  the  injured  party  being  an  action 
for  damages  on  account  of  the  breach. 

Express  conditions  may  be  either  precedent  or  subsequent. 
A  condition  precedent  is  such  a  condition  as  must  be  performed 
before  any  estate  can  vest.  A  condition  subsequent,  on  the  other 
hand,  is  one  which  upon  its  happening  will  defeat  an  estate 
already  vested.  Any  condition,  whether  precedent  or  subsequent, 
is  void  if  in  restraint  of  trade,  marriage  or  which  is  repugnant  to 
the  nature  of  the  estate  granted. 

Mortgages. 

Mortgages,  although  regarded  by  the  law  as  personal 
•property  form  one  of  the  most  important  parts  of  the  subject 
of  real  estate.  A  mortgage  is  a  document  transferring  title  to 
real  estate  to  one  loaning  a  certain  sum  of  money  to  the  owner 
thereof.  In  every  mortgage  there  is  contained  a  clause  of 
defeasance,  which  provides  that  if  the  money  is  repaid  within 
the  time  specified  the  property  shall  revert.  The  party  giving  the 
mortgage  is  called  the  mortgagor  (the  borrower),  and  the  party 
who  lends  the  money  and  takes  a  mortgage  as  security  for  its 
repayment  is  called  the  mortgagee.  A  mortgage  may  be  for  any 
quantity  of  estate,  but  in  Pennsylvania  are  most  commonly  in  fee 
simple.  Every  mortgage  must,  in  view  of  the  Statute  of  Frauds, 
be  in  writing.  It  is  not  necessary  for  a  wife  to  join  in  a 
mortgage  made  by  her  husband,  and  if  real  estate  mortgaged  by 
a  married  man  is  sold  under  proceedings  upon  a  mortgage  the 
purchaser  at  sheriff's  sale  takes  the  same  clear  of  the  wife's 
dower,  which  would  not  be  the  case  in  an  ordinary  conveyance 
of  land.  Whenever  land  is  conveyed  as  a  security  for  the 
payment  of  money  the  law  will  regard  the  conveyance  as  a 
mortgage,  and  will  not  permit  the  creditor  to  take  more  than 
is  justly  due  him,  as  the  value  of  the  property  conveyed 
frequently  exceeds  the  amount  of  the  loan.  A  husband  must 
join  in  his  wife's  mortgage. 

Equity  of  Redemption. 

Originally,  according  to  the  strict  common  law  construction 
of  conditions  broken  and  the  enforcement  of  forfeitures  there- 
upon, great  hardship  was  occasioned.  If  the  mortgagor  was 
unable  on  the  day  required,  to  pay  the  amount  due,  the  estate 
vested  absolutely  in  the  mortgagee,  and  no  subsequent  tender 
or  payment  could  operate  to  revest  the  title  in  the  mortgagor. 
In  equity  a  mortgage  was  regarded  as  a  mere  pledge  for  a  debt, 


REAL  ESTATE  AND  CONVEYANCING  167 

and  if  the  debt  was  paid  together  with  a  penalty  for  the  delay, 
the  debtor  should  have  his  property  back  again.  Consequently 
equity  recognized  the  mortgagor's  right  to  redeem,  and  this 
right  is  known  as  the  mortgagor's  equity  of  redemption.  This 
equity  of  redemption  is,  however,  limited  in  point  of  time,  as  it 
would  be  obviously  unjust  to  allow  a  mortgagor  an  unlimited 
option  to  redeem,  and  if  this  right  is  not  taken  advantage  of 
within  a  reasonable  time  after  default,  the  mortgagee  may  go  into 
Court  and  foreclose  the  mortgagor's  equity  of  redemption.  The 
Court  will  then  fix  a  new  day  on  or  before  which  the  mortgagor 
must  pay  the  debt,  and  if  he  failed  to  meet  his  obligation  upon  the 
new  date  thus  specified  his  right  to  redeem  was  forever  gone,  and 
the  estate  forfeited  to  the  mortgagee. 

In  making  a  mortgage  the  debt  is  usually  set  forth  in  a  bond, 
which  is  executed  together  with  the  mortgage.  The  law  of 
Pennsylvania  is  well  settled  as  to  debts  which  may  be  secured 
by  mortgage.  As  against  third  persons,  a  valid  mortgage  can 
only  be  created  for  a  debt  having  a  definite  existence  at  the  time 
the  mortgage  is  signed.  A  mortgage  may  be  made  to  secure 
future  advances  to  be  made  by  third  parties,  but  future  advances 
are  not  secured  unless  the  mortgagee  is  bound  by  his  agreement 
to  make  them. 

Upon  the  death  of  a  mortgagor  the  property  descends  to  his 
heirs',  and  if  the  mortgagee  dies  the  mortgage  held  by  him  passes 
to  his  executors,  as  it  is  personal  property.  If  a  man  buys  a 
property  "under  and  subject  to  a  mortgage,"  he  becomes  liable  to 
satisfy  the  same,  as  the  property  mortgaged  is  looked  upon  as  a 
fund  for  the  payment  of  the  mortgage  and  one  who  has  the 
fund  ought  to  pay  the  debt. 

A  mortgage  operates  as  a  lien  upon  the  mortgaged  premises 
and  may  be  prior  or  subsequent  to  other  liens  and  mortgages.  In 
Pennsylvania  the  words  "first  mortgage"  means  that  the  lien  of 
the  mortgage  is  prior  to  any  other  claim.  By  a  "second 
mortgage"  is  meant  one  without  intervening  liens  between  it  and 
the  first. 

Recording. 

By  statute,  all  mortgages  are  given  priority  according  to  the 
date  of  recording  the  same,  without  regard  to  the  time  of  making 
or  executing  the  same,  except  that  in  the  case  of  a  purchase 
money  mortgage  it  shall  maintain  its  priority  if  recorded  within 
sixty  days  after  date  of  execution. 

In  cities  of  the  first  class  a  purchase  money  mortgage  should 


i68  REAL  ESTATE  AND  CONVEYANCING 

be  recorded  immediately.  The  Recorder  of  Deeds  is  required 
to  note  on  every  mortgage  the  time  when  left 'for  filing,  and  if 
two  mortgages  are  given  on  the  same  day,  the  one  left  first  at  the 
Recorder  of  Deeds'  office  shall  take  priority. 

Lien  of  a  Mortgage. 

A  Hen  may  be  defined  to  be  a  right  of  priority  in  relation  to 
two  or  more  claims  against  the  same  subject  matter.  A  man  who 
holds  a  mortgage  against  a  property  and  has  duly  recorded  the 
same,  has  a  right  to  have  his  mortgage  satisfied  out  of  a  fund 
realized  upon  a  sale  of  the  mortgaged  premises  before  any  other 
creditor  of  the  owner. 

An  act  of  March  22,  1887,  preserves  the  lien  of  a  mortgage 
by  providing  "that  the  prior  lien  of  a  mortgage  should  not  be 
destroyed  or  in  any  wise  affected  by  any  judicial  or  other  sale 
whatsoever,  whether  such  sale  shall  be  made  by  virtue  or 
authority  of  any  order  or  decree  of  any  Orphans'  Court  or 
other  Court,  or  of  any  writ  of  execution,  or  otherwise,  how- 
soever, provided  that  the  act  should  not  apply  to  cases  of 
mortgages  upon  unseated  lands,  or  sales  of  the  same  for  taxes. 
Municipal  and  State  taxes  have  priority  over  every  other  claim 
against  real  estate. 

Upon  default  of  the  mortgagor  the  mortgagee  has  three 
remedies,  (i)  he  may  bring  an  action  of  ejectment,  which  is  very 
seldom  done,  owing  to  the  nature  of  the  proceeding,  (2)  he  may 
enter  up  judgment  on  the  bond  and  warrant  of  attorney 
accompanying  the  same,  (3)  or  he  may  issue  a  scire  facias, 
which  is  the  customary  way  of  foreclosing  a  mortgage  in 
Pennsylvania. 

Trust  or  Trust  Estates. 

A  trust  has  been  defined  to  be  "the  right,  enforceable  solely 
in  equity,  to  the  beneficial  enjoyment  of  property  of  which  the 
legal  title  is  in  another."  A  trust  arises  when  real  estate 
is  conveyed  to  a  party  (in  trust)  to  hold  for  and  on  behalf 
of  another.  The  party  having  the  legal  title  is  called  the 
"trustee"  and  the  party  for  whom  the  land  is  held  is  called  the 
"cestui  que  trust."  The  idea  of  dividing  the  legal  from  the  equit- 
able title  to  land  has  become  very  common  and  affords  various 
means  of  protection. 


REAL  ESTATE  AND  CONVEYANCING  169 

Estates  of  Future  Enjoyment. 

We  have,  therefore,  in  discussing  the  matter  of  estates,  made 
references  chiefly  to  those  in  actual  possession. 

A  right  to  possess  and  enjoy  real  estate  to  vest  in  the  future 
is  known  as  an  estate  in  expectancy,  which  class  of  estates  is 
divided  into  (i)  those  created  by  the  acts  of  the  parties  known 
as  remainders,  and  (2)  those  arising  upon  construction  of  law, 
known  as  reversions. 

A  remainder  is  an  estate  limited  to  take  effect  and  be 
enjoyed  after  another  estate  is  determined,  as,  for  example,  a 
conveyance  of  land  to  John  Doe  for  life,  and  after  his  death 
to  Richard  Roe  in  fee.  In  this  illustration  the  original  estate  in 
fee  is  divided  into  two,  a  life  estate  in  present  enjoyment,  and  an 
estate  in  remainder  in  fee,  to  take  effect  after  the  life  estate  is 
determined. 

There  are  two  kinds  of  remainders,  vested  and  contingent. 
A  vested  remainder  is  an  estate  in  which  the  remainder  vests 
immediately  in  a  certain  person,  who  becomes  entitled  to 
possession  upon  the  determination  of  the  orginal  or  particular 
estate.  A  contingent  remainder  is  where  either  the  person  to 
whom,  or  the  event  upon  which  the  future  estate  is  to  be  enjoyed, 
is  at  present  uncertain  as,  for  example,  an  estate  to  Joe  Doe  for 
life,  remainder  to  the  oldest  son  of  Richard  Roe,  while  Richard 
Roe  has  no  son.  In  this  case  the  remainder  does  not  immediately 
vest,  because  it  could  not  take  effect  if  the  particular  estate  ended 
at  any  time  before  Richard  Roe  had  a  son.  It  is  therefore 
contingent. 

A  reversion  is  an  estate  created  by  operation  of  law  and  is 
the  residue  of  an  estate  left  in  the  grantor  to  commence  in 
possession  after  the  termination  of  some  particular  estate  granted 
by  him. 

In  Pennsylvania  all  estates  in  expectancy  may  be  conveyed 
by  the  owners,  and  all  possible  titles,  legal  or  equitable,  vested  or 
contingent,  in  real  estate,  may  be  taken  in  execution  and  sold 
for  the  debts  of  the  owner. 

Passing  from  those  estates  in  which  but  a  single  person  has 
a  present  right  of  possession  or  enjoyment,  there  yet  remains  for 
us  to  consider  cases  in  which  two  or  more  have  a  present  right 
of  possession  of  real  estate,  which  cases  may  be  divided  into 
four  classes:  (i)  Joint  tenants,  (2)  tenants  by  entireties,  (3) 
coparceners,  and  (4)  tenants  in  common.  With  the  exception 
of  the  third  class,  these  joint  interests  in  estates  may  be  of 


I70  REAL  ESTATE  AND  CONVEYANCING 

any  quantity  (duration)  and  may  be  either  in  possession  or 
expectancy. 

Joint  tenants  are  those  who  have  a  joint  title  to  real  estate 
expressly  created  by  one  and  the  same  deed  or  will.  Upon  the 
death  of  one  joint  tenant  his  interest  passes  to  the  survivors,  and 
so  on  to  the  last  survivor.  By  statute  in  Pennsylvania  all  joint 
tenants  are  converted  into  tenants  in  common. 

Estates  by  entireties  arise  where  title  to  land  devolves  by 
grant,  devise  or  descent  to  a  man  and  wife.  Such  can  only  be 
created  during  coverture.  If  the  wife  survives  she  takes  the 
estate  by  survivorship  clear  of  her  husband's  debts,  for  the  reason 
that  she  does  not  take  by  or  through  him,  but  by  virtue  of  the 
paramount  grant  to  herself  in  the  original  conveyance.  Copar- 
ceners are  those  who  take  land  equally  by  descent  from  an 
ancestor,  but  an  estate  in  coparcenary  is  practically  obsolete  in 
Pennsylvania. 

Tenants  in  common  are  those  who  enjoy  a  unity  of  possession 
in  real  estate,  and  in  Pennsylvania,  with  the  exception  of  trust 
estates  and  estates  by  entireties,  all  estates  held  by  a  plurality  of 
tenants  are  of  this  nature. 

This  concludes  our  inquiry  into  the  nature  of  estates.  We 
will  next  consider,  under  the  title  of  Conveyancing,  how  such 
estates  may  be  transferred. 

Conveyancing. 

Having  concluded  our  inquiry  into  the  nature  and  quantity 
of  interest  which  a  man  may  have  in  things  real  (real  estate), 
the  next  question  which  logically  suggests  itself  is:  How  may 
such  interest  be  transferred?  The  right  under  which  a  man 
holds  any  interest  in  real  estate  is  known  as  his  title  thereto,  and 
conveyancing  is  that  science  which  indicates  the  manner  in  which 
title  to  real  estate  may  be  transferred. 

Title  to  real  estate  may  be  acquired  either  by  conveyance, 
by  devise  or  by  descent.  A  perfect  title  comprises  the  union  of 
possession,  with  the  right  of  possession  and  the  right  of  property. 
Mere  actual  possession  is  the  lowest  and  most  imperfect  title 
to  land,  for  both  the  right  of  possession  and  the  right  of  property 
may  be  in  another  who  has  been  dispossessed.  Possession  is,  of 
course,  prima  facie  evidence  of  title,  and  one  in  possession  of 
real  property  may  hold  the  same  against  all  the  world  except 
the  lawful  owner.  The  real  owner  may,  however,  enter  upon  the 
land  and  dispossess  one  who  has  only  a  bare  possession,  pro- 
vided he  do  so  peaceably  and  does  not  violate  the  Statute  of 


REAL  ESTATE  AND  CONVEYANCING  171 

Forcible  Entry.  A  man  may  have  a  good  title,  combining  pos- 
session, right  of  possession  and  right  of  property,  nevertheless,  it 
may  not  be  a  marketable  title,  which  is  such  a  title  as  a  Court 
would  compel  a  purchaser  to  accept.  To  constitute  a  marketable 
title  it  should  not  depend  on  any  evidence  outside  of  the  record, 
except  matters  of  pedigree,  etc. 

A  Court  will  not  decree  a  specific  performance  of  a  contract 
of  sale  if  there  is  any  reasonable  or  substantial  doubt  regarding 
the  title. 

Title  to  real  estate,  generally  speaking,  is  acquired  in  either 
one  of  two  ways:  (i)  By  descent,  or  (2)  by  purchase.  By 
descent  is  meant  hereditary  succession,  or  that  title  whereby  a 
man  acquires  an  estate  by  representation  as  heir  upon  the  death  of 
another.  The  word  purchase  has  a  very  broad  meaning  and  is 
that  title  to  real  estate  which  is  acquired  in  any  other  way  except 
by  descent.  The  word  descent  is  a  technical  word  and  applies 
only  to  real  estate,  as  personal  property  does  not  descend,  but 
goes  to  the  executor  or  administrator  to  be  disposed  of  and  dis- 
tributed by  him  under  the  law.  Descent  is  the  devolution  of 
title  upon  the  heir,  and  is  confined  to  freehold  estates  of  inherit- 
ance. An  infant,  an  unborn  child,  an  idiot,  a  married  woman  or 
a  lunatic  may  be  an  heir  and  inherit  real  estate.  The  only  excep- 
tion to  those  who  may  inherit  is  found  in  the  case  of  illegitimate 
children.  In  Pennsylvania,  by  statute,  an  illegitimate  child  may 
become  legitimate  upon  the  subsequent  marriage  and  co-habitation 
of  the  parents.  Although  at  common  law  an  alien  could  not 
inherit  real  estate,  he  is  given  this  right  by  statute  the  same  as  a 
natural  bom  citizen. 

Rights  of  Adopted  Children. 

If  a  person  adopts  a  child  legally  the  relationship  thus  created 
does  not  make  the  adopting  parent  a  father  or  mother  within 
the  meaning  of  the  intestate  law. 

The  rule,  however,  providing  that  the  property  of  an  adopted 
child  should  pass,  upon  its  death,  to  its  natural  parents,  was 
changed  by  the  act  of  April  13,  1887,  so  that  to-day  the  adopting 
parents  shall  inherit  from  the  adopted  child  to  the  exclusion  of 
the  adopted  child's  natural  parents  and  kindred,  but  this  act 
only  applies  to  such  property  as  the  adopted  child  shall  have 
inherited  or  derived  from  the  adopting  parents  or  their  kindred. 

Title  vests  in  an  heir  by  operation  of  law,  for  descent  is 
inevitable.    In  Pennsylvania  the  descent  of  real  estate  by  opera- 


172  REAL  ESTATE  AND  CONVEYANCING 

tion  of  law  is  regulated  by  the  act  of  April  8,  1833,  and  before 
citing  the  provisions  of  this  important  act  it  is  necessary  to  note 
the  fact  that  estates  tail  and  trust  estates  are  not  included  within 
the  operation  of  the  act. 

Descent  depends  upon  consanguinity  (blood  relationship), 
which  has  been  defined  to  be  "the  connection  or  relation  of 
persons  descended  from  the  same  stock  or  common  ancestor." 

Descent  is  either  lineal  or  collateral.  A  lineal  descendant 
is  one  who  is  descended  in  a  direct  line  from  another,  as  between 
a  grandson  and  grandfather,  and  to  determine  the  nearness  of 
relationship  each  generation  counts  one  degree.  Collateral  rela- 
tionship exists  between  those  who  have  descended  from  a  common 
ancestor,  but  who  do  not  descend  one  from  the  other. 

Descent  of  Property  Under  Intestate  Act. 

The  act  of  April  8,  1833,  is  of  such  general  importance 
that  the  writer  feels  warranted  in  setting  forth  its  leading  pro- 
visions in  full,  as  everyone  should  be  familiar  therewith  as  a 
matter  of  common  knowledge.  The  first  section  of  the  act 
indicates  the  objects  it  affects,  as  follows: 

"The  real  and  personal  estate  of  a  decedent,  whether  male 
or  female,  remaining  after  payment  of  all  just  debts  and  legal 
charges,  which  shall  not  have  been  sold,  or  disposed  of  by  will, 
or  otherwise  limited  by  marriage  settlement,  shall  be  divided  and 
enjoyed  as  follows: 

"Where  such  intestate  shall  have  a  widow  and  issue  (chil- 
dren), the  widow  shall  be  entitled  to  one-third  part  of  the  real 
estate  for  the  term  of  her  life,  and  to  one-third  of  the  personal 
estate  absolutely. 

"Where  such  intestate  shall  leave  a  widow  and  collateral  heirs, 
or  other  kindred,  but  no  issue,  the  widow  shall  be  entitled  to  one- 
half  part  of  the  real  estate  for  the  term  of  her  life,  and  to 
one-half  of  the  personal  estate  absolutely. 

"Where  such  intestate  shall  leave  a  husband,  he  shall  take 
the  whole  personal  estate  and  the  real  estate  shall  descend  and 
pass  as  hereinafter  provided,  saving  to  the  husband  his  right  as 
'tenant  by  curtesy,'  "  etc. 

The  Married  Woman's  Act  of  April  11,  1848,  changes  the 
interest  which  a  husband  takes  in  his  deceased  wife's  property 
under  the  act  above  cited.  It  is  provided  by  this  latter  statute 
that  if  a  married  woman  possessed  of  separate  personal  prop- 
erty shall  die  without  leaving  a  will,  her  estate  shall  be  dis- 
tributed as  follows:     "If  such  married  woman  shall  leave  no 


REAL  ESTATE  AND  CONVEYANCING  173 

children,  nor  the  descendants  of  such  living,  the  husband  shall 
be  entitled  to  such  personal  estate  absolutely;  if  such  married 
woman  shall  leave  a  child  or  children  living,  her  personal  estate 
shall  be  divided  amongst  the  husband  and  such  child  or  children, 
share  and  share  alike;  if  any  such  child  or  children  being  dead, 
shall  have  left  issue,  such  issue  shall  be  entitled  to  the  share  of 
the  parent." 

Returning  to  the  regulation  of  the  descent  of  property  under 
the  Intestate  Law  of  April  8,  1833,  it  is  provided  that  subject 
to  the  estates  given  to  the  surviving  husband  or  widow  (as  the 
case  may  be),  the  real  estate  of  an  intestate  shall  descend  and 
be  distributed  among  the  issue  in  accordance  with  the  following 
quoted  rules : 

"If  such  intestate  shall  leave  children,  but  no  other  descend- 
ant, being  the  issue  of  a  deceased  child,  the  estate  shall  descend  to 
and  be  distributed  among  such  children. 

"If  such  intestate  shall  leave  grandchildren,  but  no  child 
or  other  descendant,  being  the  issue  of  a  deceased  grandchild, 
the  estate  shall  descend  to  and  be  distributed  among  such 
grandchildren. 

"If  such  intestate  shall  leave  descendants  in  different  degrees 
of  consanguinity  to  him,  the  more  remote  of  them  being  the 
issue  of  a  deceased  child,  grandchild  or  other  descendant,  the 
estate  shall  descend  to  and  be  distributed  among  them  as 
follows,  viz : 

"Each  of  the  children  of  such  intestate  shall  receive  such 
share  as  such  child  would  have  received  if  all  the  children 
of  the  intestate  who  shall  then  be  dead,  leaving  issue,  had  been 
living  at  the  death  of  the  intestate. 

"Each  of  the  grandchildren,  if  there  shall  be  no  children, 
in  like  manner  shall  receive  such  share  as  he  or  she  would  have 
received  if  all  the  other  grandchildren  who  shall  then  be  dead, 
leaving  issue,  had  been  living  at  the  death  of  the  intestate,  and 
so  in  like  manner  to  the  remotest  degree. 

"In  every  such  case  the  issue  of  such  deceased  child,  grand- 
child or  other  descendant  shall  take  by  representation  of  their 
parents  respectively  such  share  only  as  would  have  descended 
to  such  parent,  if  they  had  been  living  at  the  death  of  the 
intestate. 

"In  default  of  issue  as  aforesaid,  and  subject  also  to  the 
estates  and  interests  hereinbefore  given  to  the  widow  or  sur- 
viving husband,  the  real  estate  shall  go  to  the  father  and  mother 
of  such  intestate  during  their  joint  lives  and  the  life  of  the  sur- 


174  REAL  ESTATE  AND  CONVEYANCING 

vivor  of  them,  and  the  personal  estate  not  otherwise  hereinbefore 
disposed  of  shall  be  vested  in  them  absolutely,  or,  if  either  the 
father  or  mother  be  dead  at  the  time  of  the  death  of  the  intestate, 
the  parent  surviving  such  intestate  shall  enjoy  such  real  estate 
during  his  or  her  life,  and  such  personal  estate  absolutely." 

The  effect  of  the  above  provisions  is  to  vest  a  decedent's 
estate  in  his  issue,  subject  of  course  to  the  estate  given  the  surviv- 
ing husband  or  widow,  if  any.  In  case  the  descendants  stand  in 
the  same  degree  of  relationship  to  the  decedent,  as,  for  example, 
all  children  or  all  grandchildren,  etc.,  they  take  in  equal  shares 
regardless  of  the  fact  that  they  may  be  of  different  parents. 
If,  however,  among  an  intestate's  descendants  there  are  both 
children  and  grandchildren,  they  take  by  representation  of  their 
parents  such  share  only  as  would  have  descended  to  such  parent 
if  they  had  been  living  at  the  death  of  the  intestate. 

Collateral  Descent. 

If  an  intestate  dies  without  leaving  any  descendants  of  any 
degree,  his  real  estate  descends  to  his  collateral  descendants,  sub- 
ject to  the  life  estate  given  to  the  widow,  surviving  husband, 
father  or  mother,  as  the  case  may  be.  Collateral  kindred  may  be 
either  those  who  are  descended  from  the  father  or  mother  of 
the  intestate,  which  are  called  near  collaterals,  or  those  whose 
relationship  with  the  intestate  is  derived  from  a  common  ancestor 
more  remote  than  his  father  or  mother,  which  class  are  called 
remote  collaterals. 

Near  collaterals  are  again  divided  into  those  of  the  whole 
blood  and  those  of  the  half  blood,  the  former  being  those 
descended  from  both  parents  of  the  intestate,  while  the  latter 
are  those  descended  from  only  one  of  the  parents  of  the  intestate. 
Remote  collaterals  cannot  inherit  if  any  of  the  near  collaterals 
are  living,  and  near  collaterals  of  the  half  blood  cannot  inherit 
the  real  estate  if  any  of  the  whole  blood  are  living,  but  personal 
property  is  divided  among  near  collaterals  without  distinction 
of  blood. 

An  intestate's  brothers  and  sisters,  and  the  descendants  of 
them  are  near  collaterals  of  the  whole  blood,  with  reference  to 
whom  the  Intestate  law  provides  as  follows: 

"If  such  intestate  shall  leave  brothers  and  sisters,  or  either, 
of  the  whole  blood,  and  no  nephew  or  niece,  being  the  issue  of  a 
deceased  brother  or  sister  of  the  whole  blood,  the  real  estate  shall 
descend  to  and  vest  in  such  brothers  and  sisters. 

"If  such  intestate  shall  leave  neither  brother  nor  sister  of 


REAL  ESTATE  AND  CONVEYANCING  175 

the  whole  blood,  but  nephews  or  nieces  being  the  children  of 
such  deceased  brother  or  sister,  the  real  estate  shall  descend  to 
and  vest  in  such  nephews  and  nieces. 

"If  such  intestate  shall  leave  brothers  and  sisters  of  the 
whole  blood,  and  also  nephews  and  nieces,  being  the  children  of 
any  such  deceased  brother  or  sister,  the  real  estate  shall  descend 
to  and  vest  in  such  brothers  and  sisters  and  nephews  and  nieces 
as  follow :  Every  such  brother  and  sister  shall  receive  such  share 
as  he  or  she  would  have  received  if  all  the  brothers  and  sisters 
who  shall  then  be  dead,  leaving  children,  had  been  living  at  the 
death  of  the  intestate,  and  such  nephews  and  nieces  shall  take 
by  representation  of  their  parents  respectively  such  share  only  as 
would  have  descended  to  such  parents  if  they  had  been  living 
at  the  death  of  the  intestate. 

"If  such  intestate  shall  leave  neither  brother  nor  sister  of 
the  whole  blood,  nor  any  nephew  or  niece,  being  the  child  of 
such  deceased  brother  or  sister,  the  real  estate  shall  descend  to 
and  vest  in  the  next  of  kin  of  such  intestate,  being  the  descendants 
of  his  brothers  and  sisters  of  the  whole  blood." 

In  default  of  collaterals  of  the  whole  blood  the  real  estate 
passes  to  the  father  or  mother  in  fee.  Brothers  and  sisters  of 
the  half  blood  will  only  take  an  intestate's  real  estate  in  default 
of  all  previous  classes. 

Where  all  the  preceding  classes  of  descendants  are  wanting, 
near  collaterals  of  the  half  blood  are  provided  for,  the  act 
providing  that  if  an  intestate  dies  without  leaving  any  descendant 
heretofore  provided  for,  real  estate  of  which  such  intestate  died 
possessed  shall  descend  to  the  brothers  and  sisters  of  the  half 
blood  of  the  intestate  and  their  issue. 

It  is  an  old  doctrine  of  the  common  law  that  no  one  can 
inherit  real  estate  who  is  not  of  the  blood  of  the  first  purchaser  or 
original  owner  of  the  land.  The  Intestate  Act  in  Pennsylvania 
modifies  this  doctrine  somewhat  in  the  following  provision : 

"That  no  person  who  is  not  of  the  blood  of  the  ancestors  or 
other  relations  from  whom  any  real  estate  descended,  or  by 
whom  it  was  given  or  devised  to  the  intestate,  shall  in  any  of  the 
cases  before  mentioned  take  any  estate  of  inheritance  therein, 
but  such  real  estate,  subject  to  such  life  estates  as  may  be  in 
existence  by  virtue  of  this  act,  shall  pass  to  and  vest  in  such  other 
persons  as  would  be  entitled  by  this  act  if  the  persons  not  of 
the  blood  of  such  ancestor  or  other  relation  had  never  existed,  or 
were  dead  at  the  decease  of  the  intestate." 

The  Act,  only  the  most  important  parts  of  which  have  been 


176  REAL  ESTATE  AND  CONVEYANCING 

set  forth,  concludes  by  vesting  the  real  and  personal  estate  of  an 
intestate  dying  without  any  known  heirs  or  kindred,  widow  or 
surviving  husband,  in  the  Commonwealth  of  Pennsylvania.  The 
title  which  the  Commonwealth  acquires  under  such  circumstances 
is  known  as  Title  by  Escheat. 

Title  by  Purchase. 

Having  concluded  the  discussion  of  how  title  to  real  estate 
may  be  acquired  by  descent,  we  turn  to  the  second  method  of 
obtaining  title  to  real  estate,  namely,  by  Purchase.  Title  by 
purchase  may  be  acquired  in  five  different  ways:  By  Escheat, 
Occupancy,  Prescription,  Forfeiture  and  Alienation,  the  latter 
of  which  is  by  far  the  most  important. 

Title  by  Escheat,  as  above  observed,  happens  when  an 
owner  of  real  estate  dies  without  known  heirs  or  kindred,  when 
such  real  estate  escheats  to  the  State. 

Title  by  forfeiture  is  where  real  estate  is  taken  as  a  punish- 
ment under  legal  process,  as  for  example,  crimes,  bankruptcy,  etc. 

By  the  law  of  Pennsylvania,  lands  are  no  longer  forfeited  on 
account  of  crimes.  Few  titles  are  at  present  obtained  by 
forfeiture. 

Title  by  occupancy,  or  as  better  known  in  Pennsylvania,  by 
settlement,  was  a  very  favorite  method  of  obtaining  property 
prior  to  the  Revolutionary  War,  but  is  of  little  importance  to-day. 
When  William  Penn  first  landed  in  this  State,  he  found  several 
hundred  Swedes  and  Dutch  already  settled  here.  To  develop 
the  province,  the  rights  of  any  one  who  would  settle  upon  a 
piece  of  land  and  cultivate  it  were  respected,  and  such  settler  in 
time  would  acquire  a  title  to  the  property  by  occupancy  or 
settlement. 

Prescription. 

To  quote  a  familiar  adage :  "Possession  is  nine  points  of  law," 
and  possession  of  real  estate  is  prima  facie  evidence  of  title. 
Long  and  continued  possession  of  property  is  held  to  be  con- 
clusive evidence  of  title,  because  if  a  man  has  had  long,  continued 
and  uninterrupted  possession  of  real  estate  it  is  only  reasonable  to 
assume  that  he  has  a  lawful  title  thereto. 

Where  a  person  has  had  such  long,  continued  and  uninter- 
rupted possession  of  real  estate,  he  acquires  what  is  known  as  a 
title  by  prescription,  which  presupposes  a  grant. 

Strictly    speaking,    title    by    prescription    only    applies    to 


REAL  ESTATE  AND  CONVEYANCING  177 

incorporeal  hereditaments,  as  these  only  could  be  granted,  as 
corporeal  hereditaments  required  actual  transfer.  However,  in 
Pennsylvania  to-day,  if  a  man  has  enjoyed  continued  and 
uninterrupted  possession  of  real  estate  for  twenty-one  years 
adverse  to  anyone  else,  such  party  is  said  to  acquire  a  title  thereto 
by  prescription. 

The  important  subject  of  title  by  alienation,  or  the  manner  in 
which  real  estate  is  transferred  by  deed,  will  be  considered  next. 

The  last  and  most  important  method  whereby  title  to  real 
estate  may  be  acquired  by  purchase  is  that  of  alienation,  which, 
generally  speaking,  includes  all  modes  of  conveying  real  property 
between  living  men.  The  written  instrument  by  which  this 
transfer  is  made  is  called  a  deed. 

A  deed  to  be  valid  must  possess  the  following  requisites: 
(i)  It  must  be  in  writing.  (2)  The  parties  thereto  must  be 
competent  to  contract.  (3)  There  must  be  a  valid  consideration, 
(4)  There  must  be  a  grant  of  property.  (5)  The  deed  must  be 
properly  executed,  i.  e.,  signed,  sealed,  attested  and  acknowledged. 
(6)  It  must  be  delivered  and  accepted.  (7)  It  must  be  recorded. 
We  will  consider  these  various  requirements  separately  and  in 
their  order. 

In  the  first  place,  a  deed  is  required  by  statute  to  be  in  writ- 
ing and  must  set  forth  clearly  the  agreement  between  the  parties. 
An  indenture  is  the  appropriate  name  of  a  deed  to  which  there 
are  two  or  more  parties;  a  deed  poll  is  the  deed  of  a  single 
party.  Strictly  speaking,  there  should  be  as  many  copies  of 
an  indenture  as  there  are  parties  to  it,  but  this  is  ordinarily 
omitted  in  practice  except  where  several  parties  acquire  estates 
or  interests  thereunder.  Where  several  copies  are  made  they 
form  together  but  one  deed,  one  of  the  parts  being  called  the 
original,  while  the  remainder  are  called  counterparts.  Careful 
conveyancers  still  adhere  to  this  practice,  but  as  a  deed  is  required 
to  be  recorded,  a  certified  copy  of  the  record  is  as  effectual  in 
evidence  as  if  the  original  were  produced  in  Court.  The  words 
with  which  an  indenture  concludes — "the  said  parties  have  in- 
terchangeably set  their  hands  and  seals" — show  the  custom  of 
having  several  parts. 

A  deed  must  contain  operative  words  of  conveyance,  the 
words  in  common  use  being  "give,  grant,  bargain  and  sell."  In 
connection  with  the  necessity  of  every  deed  being  in  writing,  it 
should  also  be  observed  that  no  alteration  or  interlineation  should 
appear  in  the  body  of  the  deed.  If  it  is  necessary  to  make  an 
alteration  in  the  body  of  the  deed  the  erasure  or  interlineation 
12 


178  REAL  ESTATE  AND  CONVEYANCING 

should  be   noted   upon   the   instrument   above   the   attestation 
clause. 

The  law  provides  that  any  transfer  of  any  interest  or  estate 
in  lands,  tenements  or  hereditaments  which  is  made  by  parol, 
and  which  is  not  put  in  writing  and  signed  by  the  parties  so 
transferring  such  interest,  shall  have  the  force  and  effect  of  leases 
or  estates  at  will  only.  Every  transfer  of  any  interest  in  real 
estate  should  be  in  writing,  although  the  law  does  not  require 
this  to  be  done  in  the  case  of  a  lease  of  real  estate  for  a  term 
not  exceeding  three  years. 

Sufficient  Parties. 

With  reference  to  the  parties  to  a  deed,  the  law  requires 
that  the  grantor  must  have  title  or  capacity  to  convey,  and  that 
the  grantee  must  have  proper  capacity  to  take  and  hold  real 
estate. 

In  Pennsylvania  the  presumption  is  that  a  corporation  has 
no  power  to  hold  real  estate,  and  legislative  authority  must  be 
shown  to  entitle  them  to  do  so. 

Unincorporated  societies  cannot  hold  real  estate  except  as 
trustees  for  a  charitable  use. 

Any  person  under  twenty-one  years  of  age,  not  having 
full  capacity  to  contract,  cannot  be  a  party  to  a  valid  deed.  A 
deed  made  by  an  infant  is, voidable,  but  after  arriving  at  full  age 
may  be  either  ratified  or  avoided.  Infants  may,  however,  hold 
lands  as  trustees  for  another. 

The  deed  of  an  insane  person  is  void,  but  such  a  deed  may 
be  rendered  valid  if  the  insane  person  subsequently  recovers  his 
reason  and  ratifies  the  same. 

Under  the  act  of  April  4,  1901,  a  married  woman  may 
convey  her  real  estate  by  deed,  providing  her  husband  join  in 
such  deed,  but  without  the  necessity  of  a  separate  acknowledg- 
ment by  the  married  woman.  Likewise  a  married  woman  may 
transfer  her  interest  in  her  husband's  real  estate  by  jointly 
executing  his  deed  and  releasing  her  rights  therein. 

The  law  prohibits  one  partner  from  transferring  any 
partnership  property  without  the  authorization  of  the  co-partners, 
and  any  one  purchasing  real  estate  from  a  partnership  should  see 
that  such  authorization  was  given. 

In  summarizing  the  competency  of  parties  to  a  deed  it  may 
be  laid  down  as  a  general  rule  that  anyone  who  is  competent  to 
make  a  valid  contract  is  also  competent  to  make  a  valid  deed  for 
the  conveyance  of  real  estate. 


REAL  ESTATE  AND  CONVEYANCING  179 

Consideration. 

As  in  the  case  of  any  contract,  a  deed  is  required  to  be 
supported  by  a  valuable  consideration,  which,  however,  need 
not  be  expressed  in  the  deed,  as  where  a  receipt  is  subjoined 
which  acknowledges  the  transfer  of  money.  It  is  also  allowable 
to  prove  the  consideration  by  oral  evidence.  There  are  two  kinds 
of  considerations  recognized  by  the  law  as  being  sufficient:  (i) 
valuable  consideration,  and  (2)  good  consideration.  A  valuable 
consideration  is  money  or  other  property  which  bears  a  known 
value.  It  has  been  held  that  a  marriage  constituted  a  valuable 
consideration  for  the  transfer  of  real  estate. 

If  a  valuable  consideration  is  lacking,  a  deed  may  be 
supported  by  what  is  known  as  a  good  consideration,  which  is 
such  as  cannot  be  said  to  have  a  pecuniary  value,  but  which  rests 
upon  moral  grounds,  such  as  the  natural  love  and  affection  which 
a  man  bears  to  his  blood  relatives  or  kindred.  If  the  grantor  has 
existing  creditors,  a  good  consideration  will  not  be  sufficient  to 
support  a  transfer  of  property. 

The  Estate  Conveyed. 

A  deed  transfers  title  to  land  and  the  rights  issuing  out  of 
lands.  The  conveyance  of  a  mere  expectancy  is  impossible  at  law, 
but  may  be  enforced  in  equity  as  an  executory  agreement  to 
convey,  which  agreement  must  be  sustained  by  a  valuable 
consideration. 

It  is  necessary  to  describe  specifically  in  a  deed  the  land 
transferred  thereby.  The  descriptions  of  city  property  should 
be  very  full,  accurate  and  complete.  Such  descriptions  should 
set  forth  monuments,  courses  and  distances,  and  the  quantity  of 
land  conveyed.  By  monuments  we  mean  such  landmarks  as  are 
set  up  for  the  purpose  of  indicating  boundaries,  such  monuments 
being  of  two  kinds — natural  and  artificial. 

Natural  monuments  are  such  objects  as  nature  has  placed  on 
the  land,  such,  for  example,  as  rivers,  trees,  ponds,  etc. 

Artificial  boundaries  are  means  which  man  has  placed  on 
land  for  the  purpose  of  indicating  boundaries,  such  as  fences, 
roads,  walls,  etc.  Very  high  regard  is  given  by  the  law  to  natural 
monuments,  and  existing  ones  may  be  proven  by  parol  evidence. 

If  land  conveyed  by  a  deed  is  bounded  by  a  navigable  river, 
the  boundary  line  should  be  described  as  extending  to  the  low- 
water  mark  of  such  stream.  If  the  stream  is  not  a  navigable  one, 
and  the  land  is  described  as  being  bounded  on  or  running  along 


i8o  REAL  ESTATE  AND  CONVEYANCING 

said  stream,  the  boundary  line  will  extend  to  the  center  of  the 
stream,  which  of  course  would  change  with  the  natural  change 
of  the  stream. 

In  the  case  of  ponds  and  lakes,  the  boundary  line  is  along 
the  edge  at  low-water  mark,  provided  the  lake  is  a  natural  one. 
If  the  pond  or  lake  is  an  artificial  one,  the  boundary  extends  to  its 
center. 

If  a  deed  describes  the  land  as  being  bounded  on  or  along 
an  open  highway  or  street,  the  boundary  line  is  the  center  of  the 
street. 

It  is  a  well-settled  rule  of  law  that  whatever  belongs  to  the 
land  granted  as  part  of  it  will  pass  with  the  grant  of  the  land 
unless  in  the  deed  it  is  expressly  reserved. 

Execution. 

If  it  is  required  by  either  party,  the  deed  must  be  read  in 
order  to  be  binding,  but  there  is  a  presumption  that  every  party 
to  a  deed  is  thoroughly  familiar  with  its  contents. 

After  reading  a  deed,  the  same  must  be  signed  by  the  grantor 
or  by  an  agent  duly  authorized  to  act  for  him.  An  agent  to 
qualify  as  such  must  have  a  power  of  attorney  under  seal  signed 
by  his  principal,  or  he  must  execute  the  same  in  the  presence  of 
his  principal.  In  case  the  grantor  is  a  person  who  cannot  write, 
his  signature  may  be  made  by  a  mark,  but  such  mark  should  be 
attested  by  the  person  who  writes  the  name  of  the  party,  who 
should  sign  as  a  subscribing  witness. 

Until  sealed,  a  writing  is  not  a  deed,  but  it  is  not  necessary 
that  such  writing  be  sealed  in  order  to  operate  as  a  conveyance 
of  land.  A  seal  gives  certain  effect  to  the  statements  contained 
in  a  deed,  but  is  not  required  to  be  attached  to  a  deed  under  the 
Statutes  of  Frauds,  etc. 

Any  scroll  or  mark  of  ink  is  sufficient  if  it  clearly  indicates 
the  intention  of  the  grantor  to  regard  it  as  a  seal.  Usually  a 
scroll  is  made  around  the  word  "Seal"  or  "L.  S."  The  deed  of 
course  recites  the  fact  that  the  grantor  has  affixed  his  seal  thereto. 
The  corporate  seal  is  ordinarily  used  in  all  corporate  deeds,  but 
it  has  been  held  that  a  deed  signed  by  the  president  of  a 
corporation,  with  an  ink  scroll  opposite  his  name,  is  sufficient. 

Attestation. 

It  is  not  necessary  under  the  law  of  Pennsylvania  that  a  deed 
be  witnessed,  but  it  is  a  wise  precaution  to  have  two  persons  sign 
their  names  as  witnesses  to  the  signature  of  the  grantor.     A 


REAL  ESTATE  AND  CONVEYANCING  i8i 

person  dealing  with  a  corporation  should  ascertain  the  authority 
of  the  officers,  as  a  corporate  seal  should  be  attested  by  the 
signature  of  the  president  and  of  the  officer  who  has  charge  of  the 
seal,  this  officer  usually  being  the  secretary. 

Acknowledgment. 

The  party  signing  a  deed  is  required  to  appear  and 
acknowledge  before  a  competent  officer,  most  commonly  a  notary 
public,  that  the  deed  is  his  act  and  deed  and  that  he  desires  the 
same  to  be  recorded  as  such. 

The  party  taking  the  acknowledgment  must  not  be  interested 
in  the  conveyance,  otherwise  the  certificate  will  be  valueless. 

Delivery. 

The  deed  being  signed  and  sealed,  is  now  ready  to  be 
delivered,  delivery  of  the  deed  being  absolutely  necessary  to  pass 
title,  the  same  taking  effect,  as  between  the  immediate  parties, 
from  the  date  of  delivery.  Possession  of  a  deed  by  a  grantee  is 
presumptive  evidence  of  delivery,  but  if  the  deed  came  into  his 
possession  without  the  knowledge  or  consent  of  the  grantor,  no 
title  will  pass. 

When  a  deed  is  delivered  by  the  grantor  to  a  third  party,  to 
be  held  until  certain  conditions  have  been  performed,  upon 
which  it  is  to  be  transferred  to  the  grantee,  it  is  said  to  be 
delivered  in  escrow. 

Recording. 

To  render  a  deed  valid  and  complete  it  is  further  acquired 
that  the  same  be  recorded. 

Almost  the  first  act  performed  by  William  Penn  upon  landing 
in  Pennsylvania  was  to  establish  an  office  for  recording  deeds. 

The  purpose  of  recording  a  deed  is  to  give  every  one  notice 
of  the  exact  condition  of  the  title  to  real  estate,  as  an  innocent 
purchaser  is  thus  glided  in  knowing  what  he  is  buying. 

Every  deed  or  instrument  of  writing  by  which  title  to  lands, 
tenements  or  hereditaments  is  transferred  or  affected  in  law  or  in 
equity  must  be  recorded,  after  having  been  first  acknowledged 
or  proved. 

Deeds  should  be  recorded  immediately,  but  if  executed 
within  Pennsylvania  they  may,  under  the  statute,  be  recorded 
within  three  months,  and  if  executed  outside  of  Pennsylvania  they 
may  be  recorded  within  six  months. 


i82  REAL  ESTATE  AND  CONVEYANCING 

In  Philadelphia  county,  deeds  are  only  valid  as  against  sub- 
sequent purchasers  for  value  from  the  date  of  recording.  The 
necessity  for  promptly  recording  a  deed  cannot  be  overestimated. 
Where  a  forged  deed  is  recorded  one  who  buys  on  the  strength  of 
the  record  takes  no  title,  even  an  innocent  purchaser  not  acquiring 
title  in  this  way. 

Having  considered  the  requisites  of  a  valid  deed,  we  will 
direct  our  attention  next  to  an  analysis  of  the  component  parts  of 
a  deed,  it  being  borne  in  mind  that  in  a  course  of  this  character, 
our  object  is  to  emphasize  only  the  most  important  features  of  a 
deed. 

A  deed  may  be  divided  into  the  following  parts : 

1.  The  Premises,  which  include  the  date,  the  name  of  the 
parties,  the  recitals,  the  consideration  and  receipt  of  same,  oper- 
ative words  of  conveyance,  the  description  of  the  thing  granted, 
and  reservations  and  exceptions. 

2.  The  Habendum,  which  begins  with  the  words  "to  have 
and  to  hold,"  and  indicates  the  quantity  of  estate  granted. 

3.  The  Tenendum,  of  no  use  at  the  present  time. 

4.  The  Reddendum,  being  that  clause  of  the  deed  reserving 
rent  or  other  interest  in  the  estate  to  the  grantor. 

5.  The  conditions  upon  which  an  estate  is  granted  (being 
either  conditions  subsequent  or  conditions  precedent,  which  we 
considered  under  estates  upon  conditions). 

6.  Warranty. 

7.  Covenants,  either  on  the  part  of  the  grantor  or  grantee  to 
do  or  refrain  from  doing  something  in  relation  to  the  estate 
granted. 

Irf  our  last  discussion  we  concluded  by  indicating  the  com- 
ponent parts  of  a  deed,  upon  which  it  would  be  well  to  make  a  few 
brief  observations. 

The  various  requisites  of  a  deed  need  not  of  necessity  be 
included  in  the  premises,  but  will  be  equally  effective  if  appearing 
in  other  parts  of  the  deed.  If  the  date  of  the  deed  is  omitted,  the 
presumption  is  that  the  date  of  delivery  is  the  date  of  the  deed. 

Immediately  after  the  premises  comes  the  habendum,  with 
which  in  recent  times  the  tenendum  is  joined.  The  object  of  the 
habendum  is  to  limit  and  define  the  quantity  of  estate  which  the 
grantee  is  to  take.  It  is  possible  to  omit  the  habendum  altogether 
from  a  deed  without  invalidating  it.  The  quantity  of  estate  having 
been  stated  in  the  granting  part  of  the  premises,  the  use  of  the 
habendum  is  to  either  lessen,  enlarge,  explain  or  qualify  the  estate 
limited  in  the  premises.    Although  the  habendum  may  explain  and 


REAL  ESTATE  AND  CONVEYANCING  183 

qualify  the  premises  it  cannot,  however,  be  totally  repugnant 
to  them. 

If  it  is  desired  to  create  any  trusts,  they  are  declared  after  the 
words  in  the  habendum  limiting  the  quantity  of  estate  granted.  If 
there  are  any  incumbrances  in  the  nature  of  mortgages,  ground 
rents,  building  restrictions,  etc.,  against  the  estate,  they  should  be 
next  mentioned  commencing  with  the  words  "under  and  subject 
nevertheless." 

The  reddendum  is  that  part  of  a  deed  which  reserves  a  rent 
or  other  interest  in  the  estate  to  the  grantor.  It  usually  follows 
the  habendum,  beginning  with  the  words  "Yielding  and  paying 
therefor  and  thereout,  unto  the  said  John  Doe,  his  heirs  and 
assigns,  the  yearly  rent  or  sum  of  (  )  dollars,"  etc. 

The  conditions  annexed  to  the  estate  granted  follow  the 
reddendum. 

The  warranty  and  covenants  which  come  after  the  conditions, 
may  be  considered  together.  A  covenant  is  an  agreement  under 
seal,  and  every  agreement  contained  in  a  deed  is  a  covenant,  for 
the  reason  that  every  deed  is  required  to  be  sealed.  Covenants 
may  be  either  exjpress  or  implied. 

An  express  covenant  contained  in  every  deed  is  the  covenant 
on  the  part  of  the  g^rantor  that  he  is  lawfully  seized  and  has  a 
good  right  to  convey  the  estate.  Another  important  express 
covenant  in  a  deed  is  that  against  incumbrances,  such  as  unpaid 
taxes,  easements,  outstanding  mortgages,  etc.  Incumbrances  are 
of  two  kinds:  (i)  those  which  affect  the  title,  and  (2)  those 
which  affect  the  physical  condition  of  the  property.  A  covenant 
of  quiet  enjoyment  is  an  assurance  against  a  defective  title  and 
any  disturbance  thereunder.  This  covenant,  in  effect,  has  been 
practically  superseded  by  the  covenant  of  warranty,  which  is  the 
most  useful  of  all  covenants.  It  guarantees  the  grantee  against 
not  only  existing  claims,  but  also  such  as  may  be  presented 
against  the  land  in  the  future.  The  covenant  of  warranty  is  a 
personal  obligation,  and  may  be  barred  by  the  Statute  of  Limita- 
tions. The  warranty  contained  in  the  ordinary  Pennsylvania 
deed  is  a  special  warranty. 

Implied  Covenants. 

Certain  covenants  in  a  deed  arise  by  implication.  Thus  two 
covenants  are  implied  from  the  words  "grant,  bargain  and  sell:" 
(i)  that  of  title  in  the  grantor,  and  (2)  that  of  quiet  enjoyment. 

The  principal  distinction  in  covenants  is  between  real 
covenants   and  personal  covenants,    that    is   to    say,    between 


i84  REAL  ESTATE  .AND  CONVEYANCING 

covenants  which  are  said  to  run  with  the  land  and  those  which 
do  not.  As  a  matter  of  fact,  all  covenants  are  personal  and  bind 
the  covenantor  (the  party  making  the  covenant)  personally;  but 
some  covenants  are  only  personal,  while  some  bind  the  lands  in 
the  hands  of  the  heir  or  assignee  of  the  covenantee  the  same  as 
the  covenantor.  A  real  covenant  may  be  defined  as  one  which 
runs  with  the  land  and  descends  to  the  heir  and  is  transferred 
to  a  purchaser.  For  example,  a  real  covenant  made  by  a  grantee 
or  lessee  will  not  only  bind  such  grantee  or  lessee,  but  also  the 
assignee  of  said  grantee  or  lessee,  so  that  the  grantor  or  lessor  or 
their  heirs  could  bring  an  action  on  the  covenant  at  any  time. 
Covenants  of  warranty,  covenants  to  pay  rent,  covenants  imposing 
restrictions  upon  building,  the  performance  of  which  affect  the 
nature,  quality  or  value  of  the  land  conveyed,  are  illustrations  of 
real  covenants  or  those  which  run  with  the  land.  Covenants 
which  run  with  the  land  may  be  implied  as  well  as  expressed. 

Common  Law  Conveyances. 

Conveyances  are  divided  into  two  classes:  (i)  Original  or 
primary,  and  (2)  secondary  or  derivative.  The  first  class  includes 
those  which  create  an  estate  in  land;  the  second  class  are  those 
which  enlarge,  restrain,  transfer  or  extinguish  an  estate  already 
created.  The  principal  conveyances  of  the  first  class  are  gift, 
grant,  lease,  exchange  and  partition,  feoffment  having  become 
obsolete.  Secondary  conveyances  comprise  release,  confirmation, 
surrender,  assignment  and  defeasance.  It  will  only  be  necessary 
to  explain  a  few  of  these  conveyances,  as  the  others  have  been 
covered  heretofore. 

An  exchange  is  a  mutual  grant  of  equal  interests,  the  one  in 
consideration  of  the  other.  When  an  exchange  of  one  property 
for  another  is  desired,  mutual  deeds  of  bargain  and  sale,  with  the 
usual  covenants  of  title,  are  preferred  and  adopted  by  modern 
conveyancers. 

A  partition  is  effected  when  two  or  more  persons  having 
unity  of  possession  of  real  estate  agree  to  divide  the  same,  each 
having  a  distinct  part. 

A  release  is  a  conveyance  of  a  man's  right  in  real  estate  to 
one  who  had  a  former  estate  in  possession  thereof.  The  essential 
words  in  this  conveyance  are:  "Remise,  release  and  forever 
quit  claim." 

A  confirmation  is  a  conveyance  of  an  estate  whereby  a  void- 
able estate  is  made  sure  and  unavoidable.    Thus  the  deed  of  a 


REAL  ESTATE  AND  CONVEYANCING  185 

minor  which  is  voidable  may  be  confirmed  upon  reaching 
majority. 

The  converse  of  a  release  is  a  surrender,  which  is  that  con- 
veyance whereby  a  man  yields  up  a  less  estate  in  possession  to  one 
who  has  a  greater  estate  in  remainder.  For  example,  where  a 
tenant  for  life  gives  his  estate  to  the  remainderman  or  rever- 
sioner, i.  e.,  to  the  party  entitled  to  his  estate  upon  his  death. 

An  assignment  is  merely  a  transfer  of  an  estate  in  lands,  usu- 
ally of  a  term  of  years,  and  is  frequently  used  in  transferring  a 
ground  rent  or  a  bond  and  mortgage. 

A  defeasance  is  a  collateral  deed  affixing  conditions  to  an 
estate  granted  by  another  deed  made  at  the  same  time. 

Construction  of  Deeds. 

Having  considered  the  various  kinds  of  deeds,  the  component 
parts  thereof,  and  the  manner  of  their  execution,  the  subject 
cannot  be  concluded  without  a  brief  inquiry  concerning  the  rules 
which  regulate  their  construction. 

The  Courts  always  aim  to  construe  a  deed  favorably  in  order 
that  they  may  take  effect,  if  possible,  and  carry  out  the  intention 
of  the  parties  thereto.  In  determining  the  intention  of  the  parties, 
the  Courts  have  much  more  consideration  for  the  substance  than 
for  the  form  of  deeds.  Blots,  bad  spelling,  bad  grammar,  etc., 
will  not  invalidate  a  deed ;  neither  will  erasures  or  interlineations, 
provided  they  are  made  before  the  deed  was  executed.  A  deed 
will  be  interpreted  as  a  whole ;  that  is,  if  a  particular  part  is  in 
dispute,  its  construction  will  be  governed  by  that  which  precedes, 
as  well  as  that  which  follows  it.  Another  well-established  rule  of 
construction  is  that  the  words  of  a  deed  will  always  be  taken  most 
strongly  against  the  party  employing  them.  The  existence  of 
fraud  in  connection  with  a  deed  will  invalidate  it.  A  man  who 
is  in  debt  cannot  give  away  his  property  except  for  a  sufficient 
consideration.  Even  if  the  sale  of  real  estate  is  for  a  full  price, 
which  is  actually  paid,  if  the  object  of  the  sale  is  to  defraud 
creditors  and  the  purchaser  knows  it  and  aids  and  assists  the 
plan,  his  title  is  worthless  as  against  creditors.  If,  however,  a 
sale  is  made  without  a  present  payment  of  money,  but  in  payment 
of  a  prior  debt  which  is  honestly  due,  it  will  not  be  held 
fraudulent.  Care  should  be  exercised  in  making  a  conveyance 
without  consideration,  for  as  between  the  parties  and  those 
claiming  under  them  such  a  conveyance  will  be  valid. 

It  is  a  common  custom  in  conveying  property  for  the  purpose 
of  placing  the  same  out  of  the  reach  of  creditors  to  place  the  same 


i86  REAL  ESTATE  AND  CONVEYANCING 

in  the  name  of  the  wife  of  the  debtor.  This  practice,  is,  however, 
subject  to  certain  risks.  If  a  man,  while  insolvent,  transfers  his 
property  to  his  wife,  the  presumption  is  that  the  husband 
furnished  the  means  of  payment  and  the  law  places  the  burden 
upon  the  wife,  if  her  title  is  questioned  by  her  husband's  creditors, 
of  proving  that  she  paid  for  the  property  out  of  her  own  separate 
money. 

Title  by  Matter  of  Record. 

It  has  frequently  occurred  that  title  to  real  estate  cannot  be 
transferred  for  want  of  a  person  having  capacity  to  convey  the 
same.  It  has  been  the  policy  of  the  Legislature  of  Pennsylvania 
to  free  from  all  obstacles  the  transfer  of  title  to  real  estate,  and 
many  statutes  have  been  passed  conferring  upon  our  Courts 
jurisdiction  and  power  to  order  the  sale  of  lands  which  could 
not  otherwise  be  transferred.  An  important  item,  therefore, 
under  the  general  head  of  title  by  matter  of  record,  is  judicial 
sales,  which  includes  sales  under  execution  and  sales  by  order  of 
Court.  Our  Constitution  declares  that  private  property  shall 
not  be  taken  from  one  in  lawful  possession  thereof,  without  due 
process  of  law,  which  means  a  judgment  rendered  in  due  course 
of  the  administration  of  law.  The  judicial  power  being  vested 
by  the  State  Constitution  in  the  Courts  of  law,  only  a  Court  of 
law  can  render  such  a  judgment.  By  a  special  provision  of  our 
Constitution,  the  Legislature  may  take  private  property  for  public 
uses  upon  making  proper  compensation,  which  right  is  known  as 
the  right  of  eminent  domain. 

Innumerable  titles  to  real  estate  are  acquired  by  sheriff's 
sales.  It  is  impossible  in  a  course  of  this  character  to  indicate 
the  various  ways  in  which  a  sheriff's  sale  may  be  brought  about, 
but  it  is  very  important  to  a  real  estate  man  to  know  how  to 
judge  the  validity  of  a  title  which  has  been  conveyed  by  a  Sheriff 
by  deed  duly  acknowledged  in  open  Court,  and  entered  upon 
the  records  according  to  law. 

It  may  be  stated  as  a  general  rule  that  the  acknowledgment 
and  delivery  of  a  Sheriff's  deed  cures  all  irregularities  and 
establishes  a  good  title  to  the  property  sold.  A  sheriff's  sale  to 
be  valid  must  be  based  upon  a  judgment  in  a  Court  having  proper 
jurisdiction,  and  must  be  free  from  collusion  and  fraud.  The 
title  which  a  purchaser  at  sheriff's  sale  acquires  is  that  which 
the  defendant  in  the  judgment  had  at  the  time  the  execution  was 
levied.  His  title  is  not  affected  by  a  prior  unrecorded  deed,  and 
he  is  not  affected  by  any  secret  trusts  of  the  existence  of  which 


REAL  ESTATE  AND  CONVEYANCING  187 

he  was  ignorant.  Upon  a  sheriff's  sale  of  real  estate  for  taxes 
or  municipal  claims,  the  owner  has  the  right  to  redeem  by  paying 
the  purchaser  all  his  costs  and  charges  and  the  purchase  money 
with  twenty  per  cent,  added  thereto. 

Besides  sheriff's  sales,  the  Courts  of  Common  Pleas  and 
Orphans'  Court  have  power  to  decree  the  sale  of  real  estate  under 
certain  circumstances,  and  in  such  case  it  is  the  Court  which 
makes  the  conveyance,  and  it  is  hence  immaterial  whether  or  not 
the  person  who  signs  the  deed  has  legal  capacity  to  do  so.  If  the 
circumstances  are  such  as  to  convince  the  Court  that  a  sale  ought 
to  be  made,  scarcely  a  case  can  arise  where  the  power  to  sell  and 
convey  real  estate  is  wanting  that  such  power  cannot  be  supplied 
by  the  order  of  a  Court. 

The  subject  of  real  estate  cannot  be  properly  concluded 
without  a  consideration  of  title  by  devise,  or  that  title  to  lands 
which  is  created  by  will,  being  the  last  method  whereby  title  to 
real  estate  may  be  acquired  by  purchase. 

When'real  estate  is  transferred  by  a  will  it  is  called  a  devise ; 
wfien  personal  property  is  transferred,  it  is  called  a  bequest. 

The  two  principal  characteristics  of  a  will  are:  (i)  That 
it  cannot  take  effect  before  the  death  of  the  testator  or  maker, 
and  (2)  it  is  revocable  any  time  before  death. 

Wills  may  be  either  unwritten  or  written.  An  unwritten 
will,  known  as  a  nuncupative  will,  is  one  made  by  word  of  mouth 
and  can  only  effect  a  disposition  of  personal  property.  It  is 
further  required  that  an  unwritten  will,  to  be  valid,  must  be 
made  during  the  last  illness  of  the  testator.  If  the  property  is 
in  the  form  of  money,  and  exceeds  in  amount  one  hundred 
dollars,  it  must  be  proved  that  the  testator  when  he  pronounced 
the  bequest  bid  those  present  to  witness  that  such  was  his  last 
will.  Two  competent  witnesses  are  necessary  to  prove  an 
unwritten  will. 

Unless  a  person  is  prevented  from  making  a  will  in  writing 
by  the  extremity  of  his  last  illness,  a  will  must  be  made  in  writing. 

Every  person  of  sound  mind  who  is  twenty-one  years  of  age 
or  upward  may  make  a  will.  Every  will  must  be  signed  by  the 
maker  at  the  end  thereof,  or  by  some  person  in  his  presence 
and  by  his  express  direction.  The  rule  that  every  will  must  be  in 
writing  as  regards  devises  of  real  estate  is  without  any  exception 
whatever. 

In  Pennsylvania  it  is  not  necessary  to  have  any  subscribing 
witness  to  a  will,  although  it  is  preferable  to  do  so,  the  law  merely 
requiring  that  a  will  must  be  proved  by  two  witnesses.    A  will 


i88  REAL  ESTATE  AND  CONVEYANCING 

which  gives  property  to  a  religious  or  charitable  organization  must 
have  two  disinterested  subscribing  witnesses.  Likewise  in 
many  States,  wills  devising  real  estate  require  subscribing 
witnesses,  in  some  States  two,  in  others  three.  Wills  in 
Pennsylvania  purporting  to  pass  real  estate  in  such  States  must 
be  witnessed  accordingly. 

A  will  transferring  real  estate  cannot  be  revoked  or  altered 
except  by  a  will  or  codicil  (addition  to  a  will)  executed  and 
proved  like  a  will,  unless  the  testator  burns,  destroys  or  cancels 
the  same.    A  will  of  lands  operates  as  a  conveyance  of  title. 


CREDITORS'  PETITION    IN    BANKRUPTCY 

3n  tbt  Dt0ttict  Court  of  tbe  (UniteD  Btatta 

For  the  District  of 

%^t  petition  of 

respectfully  shows: 

Thai 
of  ,  has  for  the  greater  portion  of  six  months 

next  preceding  the  date  of  filing  this  petition,  had  his  principal  place 
of  business,  [or  resided,  or  had  his  domidl]  at  , 

in  the  County  of  ,  and  State  and  Dis- 

trict aforesaid,  and  owes  debts  to  the  amount  of  SI, 000. 

That  your  petitioners  are  creditors  of  said 

,  having  provable  claims  amounting  in  the  aggre- 
gate, in  excess  of  securities  held  by  them,  to  the  sum  of  $500.  That 
the  nature  and  amount  of  your  petitioners'  claims  are  as  follows: 


And  your  petitioners  further  represent  that  said 

is  insolvent,  and  that  within  four  months  next 
preceding  the  date  of  this  petition  the  said 

committed  an  act  of  bankruptcy,  in  that  he  did  heretofore,  to  wit,  on 
the  day  of 


USi^ttttOtt  your  petitioners  pray  that  service  of  this  petition, 
with  a  subpwna,  may  be  made  upon 

as  provided  in  the  acts  of  Congress  relating  to 
bankruptcy,  and  that  he  may  be  adjudged  by  the  court  to  be  a  bankrupt 
toithin  the  purview  of  said  acts. 


Attorney. 


Petitioners. 


PROOF  OF  SECURED    DEBT 

In  tf)e  Dimict  Court  of  tU  OniteD  %tate0 

For  the  District  of 


IN  THE  MATTER  OF 

No.  In  Bankruptcy. 

Bankrupt. 


At  ,  in  said  District 

of  on  the  day  of  , 

A.  D.  191  came 

of  in  the  County  of 

in  said  District  of  and  made  oath,  and 

says  that  ,  the  person 

by  [or  against]  whom  a  petition  for  Adjudication  of  Bankruptcy  has 
been  filed,  was  at  and  before  the  filing  of  said  petition,  and  still  is, 
ustly  and  truly  indebted  to  said  deponent  in  the  sum  of 

Dollars;  that  the 
consideration  of  said  debt  is  as  follows' 

that  no  part  of  said  debt  has  been  paid  [except 

] 

that  there  are  no  set-offs  or  counterclaims  to  the  same  [except 

1 
and  that  the  only  securities  held  by  this  deponent  for  said  debt  are  the 
following: 

Creditor. 

&ttb!S(Cttbf  tl  and  sworn  to  before  me  this  day  of  , 

A.  D.  191 

(Official  Character.) 

PROOF  OF  UNSECURED  DEBT 

Jin  tbe  District  Court  of  tl)e  dlniteD  ^tate0 

For  the  District  of 


IN  THE  MATTER  OF 

No.  In  Bankruptcy. 

Bankrupt. 


At  ,  in  said  District 

of  on  the  day  of  , 

A.  D.  191  came 

of  in  the  County  of 

in  said  District  of  and  made  oath,  and  says 

that  ,  the  person 


by  [or  against]  whom  a  Petition  for  Adjtidication  of  Bankruptq/ 
has  been  filed,  was  at  and  before  the  filing  of  said  petition,  and  still 
is,  justly  and  truly  indebted  to  said  deponent  in  the  sum  of 

Dollars;  that  the  consideration 
of  said  debt  is  as  follows: 


that  no  part  of  said  debt  has  been  paid  [except 

1 
that  there  are  no  set-offs  or  counterclaims  to  the  same  [except 

1 
and  that  deponent  has  not,  nor  has  any  person  by  his  order,  or  to 
his  knowledge  or  belief,  for  his  use,  had  or  received  any  manner  of 
security  for  said  debt  whatever,  and  that  no  note  has  been  received  for 
said  debt  and  no  judgment  rendered  thereon. 

Creditor. 

&Ub0Ct:ibCtl  and  sworn  to  before  me  this  day  of 

A.  D.  191 

(Official  Chanetei.) 


PROOF  OF  DEBT  DUE  CORPORATION 

Jn  tte  Dt0ttict  Court  of  t|)e  OntteD  ^tate0 

For  the  District  of 


At 

le 

IN 

THE 

MAT1 

on  the 
in 

VER  OF           ) 

■  No. 
Bankrupt. ) 

In  Bankruptcy. 

of 
cam 

of 

«/ 
is 

day  of 

the  County  of 

ami  made  oath, 
of 

,  171  said  District 
,  A.  D.  191 

and  State 
and  says  that  he 

a  corporatioh  incorporated  by  and  under  the  laws  of  the  State  of 

ami  carrying  on  business  at 
in  the  County  of  and  Stale  of  ami  that  he  is  duly 

authorized  to  make  this  proof,  ami  says  that  the  said 
the  person  by  [or  against]  whom  a  Petition  for  Adjudication  of  Bank- 
ruptcy has  been  filed,  was  at  and  before  the  filing  of  the  said  petition, 
and  still  is,  justly  and  truly  in'lehted  to  said  corjwration  in  the  sum  of 

Dollars, 
that  the  consideration  of  said  debt  is  as  follows: 


thai  no  part  of  said  debt  has  been  paid  [except 

1 

that  there  are  no  set-offs  or  counterclaims  to  the  same  [except 

] 

and  that  said  corporation  has  not,  nor  has  any  person  by  its  order, 
or  to  the  knowledge  or  belief  of  said  deponent,  for  its  use,  had  or 
received  any  manner  of  security  for  said  debt  whatever,  and  that  no 
note  has  been  received  for  said  debt  and  no  judgment  rendered  thereon. 

of  said  Corporaiion. 

&Ub0Cttbtb  and  sworn  to  before  me  this  day  of  , 

A.  D.  191 

(Official  Character.) 


PROOF  OF  BOOK  ACCOUNT 

County  of  ss. 

Cbe  Commonlnealtt)  of  ^enmsipltiama 

SDn  t^t  day  of  Anno 

Domini  19        ,  before  me, 

personally  appeared 

who  being  duly  sworn  or  affirmed,  according  to  law,  doth  depose  and 
say,  that  the  annexed  account  against 

is  correctly  copied  from  the  books  of  Original  Entry,  of 

that  the  charges  were  made  in  said  books  at 
or  about  the  time  of  their  respective  dates;  that  the  goods  for  which 
said  charges  were  made  were  sold  and  delivered  as  charged;  that  the 
charges  are  correct,  and  the  account  just  and  true  as  stated;  that  there 

is  now  due  and  owing  thereon  the  sum  of  Dollars 

that  no  part  oj  said  sum  has  ever  been  paid  or  in 
any  manner  settled,  and  that  there  are  no  deductions  or  offsets  of  any 
kiru.l,  except  such  as  are  therein  specified  and  credited. 

Sworn  or  affirmed  to,  and  subscribed  before  me,  this 
day  of  A.D.19 

(l2AttrU00  my  hand  and  seal,  the  day  and  year 

aforesaid. 


BANKRUPTCY. 

Acts  of  Bankruptcy — The  Petition — IVho  May  Become  Bank- 
rupts— Bankruptcy  of  Partnerships — Exemptions — Duties 
of  Bankrupts — Compositions  with  Creditors — Discharge — 
Offenses — Preferences — Provable  Debts. 

NO  more  important  subject  presents  itself  for  the  con- 
sideration of  the  practical  business  man  than  that  of 
bankruptcy.  As  everyone  is  likely  to  become  involved, 
directly  or  indirectly,  with  bankrupt  estates,  it  is  essential  to 
acquire  a  clear  understanding  of  the  principles  which  regulate 
such  proceedings. 

The  Constitution  of  the  United  States  vests  in  Congress  the 
power  to  regulate  bankruptcy  proceedings,  which  power  has  been 
exercised  by  the  enactment  of  several  statutes,  the  law  now  in 
force  being  the  act  of  1898,  and  supplements,  which  as  a 
national  bankruptcy  law  has  been  found  to  be  quite  effective. 

It  will  be  necessary  to  discuss  this  subject  in  the  form  of 
a  general  synopsis  of  the  acts  of  Congress,  with  such  explanations 
as  may  conduce  to  a  clear  understanding  thereof. 

In  the  first  place,  bankruptcy  proceedings  are  under  the 
control  and  supervision  of  the  district  Courts  of  the  United 
States,  which  are  given  original  jurisdiction  to  adjudge  persons 
bankrupt,  to  allow  and  disallow  claims,  reconsider  allowed  or 
disallowed  claims,  and  allow  or  disallow  them  against  bankrupt 
estates;  to  appoint  receivers  if  necessary  for  the  preservation  of 
estates,  to  take  charge  of  a  bankrupt's  property,  to  try  and  punish 
bankrupts  violating  the  laws  of  the  United  States,  cause  the 
estates  of  bankrupts  to  be  collected,  reduced  to  money  and 
distributed  and  determine  controversies  in  relation  thereto,  to 
close  estates  whenever  it  appears  that  they  have  been  fully 
administered,  confirm  or  reject  compositions  between  debtors  and 
their  creditors,  determine  all  claims  of  bankrupts  to  their 
exemptions,  discharge  or  refuse  to  discharge  bankrupts  and  set 
aside  discharges  and  reinstate  the  cases,  to  appoint  and  remove 
trustees  and  to  tax  costs  whenever  they  are  allowed  by  law. 
Besides  the  principal  powers  above  enumerated,  the  jurisdiction 
of  a  Court  of  Bankruptcy  is  sufficient  to  properly  regulate  all 
matters  appertaining  to  bankruptcy. 

The  object  of  our  law  is  to  enable  an  individual,  firm  or 

(189) 


I90  BANKRUPTCY 

corporation  becoming  bankrupt  to  surrender  all  assets  to  the 
Court,  which  shall  distribute  the  same  to  creditors  and  in  due 
course  of  time  discharge  the  bankrupt,  which  discharge  shall 
operate  as  a  release  of  all  indebtedness.  The  procedure  enables 
one  who  has  become  bankrupt  to  adjust  his  aflfairs  in  such  a  way 
that  he  may  resume  business  with  a  clear  record. 

Acts  of  Bankruptcy. 

The  statute  specifies  five  acts,  the  commission  of  any  of 
which  constitutes  bankruptcy. 

"Acts  of  bankruptcy  by  a  person  shall  consist  of  his  having 
(i)  conveyed,  transferred,  concealed  or  removed,  or  permitted  to 
be  concealed  or  removed,  any  part  of  his  property  with  intent 
to  hinder,  delay  or  defraud  his  creditors,  or  any  of  them;  or 
(2)  transferred,  while  insolvent,  any  portion  of  his  property  to 
one  or  more  of  his  creditors  with  intent  to  prefer  such  creditors 
over  his  other  creditors;  or  (3)  suffered  or  permitted,  while 
insolvent,  any  creditor  to  obtain  a  preference  through  legal 
proceedings,  and  not  having  at  least  five  days  before  a  sale  or 
final  disposition  of  any  property  affected  by  such  preference 
vacated  or  discharged  such  preference;  or  (4)  made  a  general 
assignment  for  the  benefit  of  his  creditors,  or,  being  insolvent, 
applied  for  a  receiver  or  trustee  for  his  property,  or  because 
of  insolvency  a  receiver  or  trustee  has  been  put  in  charge  of 
his  property  under  the  laws  of  a  State,  of  a  Territory  or  of  the 
United  States;  or  (5)  admitted  in  writing  his  inability  to  pay  his 
debts  and  his  willingness  to  be  adjudged  a  bankrupt  on  that 
ground." 

The  intent  with  which  a  man  transfers  his  property  is  the 
important  element  in  the  first-mentioned  act  of  bankruptcy.  That 
a  transfer  or  concealment  of  property  was  made  with  intent  to 
defraud  creditors  must  be  clearly  established  by  him  who  asserts 
it.  The  fraudulent  intent  may  be  inferred  from  the  necessary 
consequences  of  the  act. 

A  transfer  of  property  while  insolvent  for  the  purpose  of 
giving  one  creditor  a  preference  over  another  is  an  act  of 
bankruptcy  very  frequently  committed.  The  elements  of 
preference  are  (i)  insolvency,  (2)  intent  to  prefer  and  (3)  a 
transfer  of  property. 

The  first  section  of  the  act  of  1898,  defines  insolvency  as 
follows:  "A  person  shall  be  deemed  insolvent  within  the 
provisions  of  this  act  whenever  the  aggregate  of  his  property, 
exclusive    of    any    property    which    he    may    have    conveyed. 


BANKRUPTCY  191 

transferred,  concealed  or  removed,  or  permitted  to  be  trans- 
ferred, concealed  or  removed,  with  intent  to  defraud,  hinder  or 
delay  his  creditors,  shall  not,  at  a  fair  valuation,  be  sufficient  in 
amount  to  pay  his  debts." 

The  intent  to  prefer  one  or  more  creditors  over  others 
will  be  presumed  when  the  transaction  consists  in  a  transfer  of 
personal  property  by  way  of  payment.  A  debtor  is  presumed  to 
know  his  financial  condition,  and,  therefore,  payments  by  one 
knowing  himself  to  be  insolvent  raise  a  conclusive  presumption 
of  intent  to  prefer. 

A  transfer  of  property  affords  a  very  strong  presumption 
of  an  intention  to  prefer  if  there  are  any  creditors  unprovided 
for. 

The  third  act  of  bankruptcy  occurs  when  an  insolvent  debtor 
allows  a  creditor  to  obtain  a  preference  over  other  creditors 
through  any  legal  proceeding  without  discharging  the  same  at 
least  five  days  before  a  sale  or  final  disposition  of  any  property 
affected  by  such  preference.  A  debtor  shall  be  deemed  insolvent 
and  his  estate  shall  become  subject  to  compulsory  liquidation  if 
he  permits  any  execution  issued  against  him  under  which  any 
of  his  chattels,  land  or  property  are  seized,  levied  upon  or  taken 
in  execution,  to  remain  unsatisfied. 

General  Assignment  or  Receivership. 

The  making  of  a  general  assignment  for  the  benefit  of 
creditors,  with  or  without  preferences,  has  always  been  an  act 
of  bankruptcy.  This  fourth  act  of  bankruptcy  has  been  amended 
by  the  act  of  1903,  so  that  now  a  co-partnership,  or  a  corporation, 
which  is  insolvent  and  applies  for  or,  because  of  insolvency,  has 
been  put  in  charge  of  a  receiver  or  trustee,  under  the  laws  of 
a  State,  or  of  a  Territory  or  of  the  United  States,  thereby 
commits  an  act  of  bankruptcy.  Owing  to  the  lack  of  comity 
between  the  States,  a  receiver  of  an  insolvent  corporation  in  one 
State  is  rarely  recognized  in  another,  the  result  being  that  the 
creditors  in  one  State  could  secure  preferences  over  those  in 
another.  As  it  is  one  of  the  general  purposes  of  the  bankruptcy 
law  to  provide  a  uniform  national  law,  by  which  insolvent  traders 
can  make  a  pro  rata  distribution  of  their  assets  among  all 
creditors,  this  amendment  of  1903  was  passed,  and  consequently 
a  corporation  or  co-partnership  which  attempts  to  wind  up  its 
aflfairs  by  means  of  a  receivership  appointed  by  a  State  Court 
may  be  adjudged  an  involuntary  bankrupt  under  the^  Federal 
statute. 


192  BANKRUPTCY 

The  fifth  and  last  act  of  bankruptcy  which  we  shall  consider 
is  committed  by  an  admission  in  writing  of  one's  inability  to  pay 
his  debts  and  his  willingness  to  be  adjudged  a  bankrupt  on  that 
account.  It  is  not  to  be  expected  that  in  his  correspondence  a 
debtor  who  is  a  natural  person  will,  with  a  purpose  to  get  into 
bankruptcy,  both  confess  inability  to  pay  his  debts  and  a  will- 
ingness to  be  adjudged  a  bankrupt;  the  filing  of  a  voluntary 
petition  is  more  direct.  The  value  of  this  act  did  not  appear  until 
the  fact  that  corporations  might  through  it  become,  in  effect, 
voluntary  bankrupts  was  generally  recognized.  Three  elements 
are  necessary  to  this  act  of  bankruptcy :  ( i )  A  writing  signed  by 
the  debtor  or  some  officer  or  agent  duly  authorized;  (2)  a 
distinct  admission  therein  of  his  inability  to  pay  his  debts,  and 
(3)  an  unqualified  expression  of  willingness  to  be  adjudged  a 
bankrupt  on  that  ground. 

The  Petition. 

If  a  person  has  committed  any  one  of  the  above  mentioned 
acts  of  bankruptcy,  an  interested  party  may  petition  the  Court 
to  have  such  a  person  adjudged  a  bankrupt.  Such  petition  may 
be  filed  within  four  months  after  the  commission  of  the  alleged 
act  of  bankruptcy,  and  such  time  shall  not  expire  until  four 
months  after  ( i )  the  date  of  recording  the  transfer  or  assignment 
when  the  act  consists  in  having  made  a  transfer  of  any  of  his 
property  with  intent  to  hinder,  delay  or  defraud  his  creditors  or 
for  the  purpose  of  giving  a  preference  as  hereinbefore  provided, 
or  a  general  assignment  for  the  benefit  of  his  creditors,  if  by 
law  such  recording  or  registering  is  required  or  permitted,  or,  if  it 
is  not,  from  the  date  when  the  beneficiary  takes  notorious, 
exclusive  or  continuous  possession  of  the  property,  unless  the 
petitioning  creditors  have  received  actual  notice  of  such  transfer 
or  assignment. 

Solvency  at  the  time  of  filing  the  petition  constitutes  a 
complete  defense  to  any  proceedings  in  bankruptcy.  It  is 
conceivable  that  a  debtor  may  have  been  insolvent  at  the  time 
the  act  of  bankruptcy  was  committed,  but  not  when  the  petition 
was  filed.  If  solvency  at  such  date  is  proved  by  the  alleged 
bankrupt,  the  proceedings  will  be  immediately  dismissed.  The 
burden  of  proving  solvency  is  always  on  the  alleged  bankrupt. 
If  this  defense  is  relied  on,  the  alleged  bankrupt  must  appear  in 
Court  at  a  preliminary  hearing,  with  his  books,  papers  and 
accounts,  and  submit  to  an  examination,  and  testify  as  to  all 
matters  tending  to  establish  solvency  or  insolvency.     When  the 


BANKRUPTCY  I93 

bankrupt  puts  his  solvency  in  issue  and  appears  and  gives 
testimony,  the  burden  of  proving  him  a  bankrupt  shifts  to  the 
petitioning  creditors. 

If  a  petition  is  filed  by  one  person  for  the  purpose  of  having 
another  adjudged  a  bankrupt,  and  an  application  is  made  to  take 
charge  and  hold  the  property  of  the  alleged  bankrupt,  or  any 
part  of  the  same,  pending  a  hearing  on  the  petition,  the  petitioner 
or  applicant  must  file  in  Court  a  bond,  with  two  sufficient  sureties 
residing  within  the  jurisdiction  of  the  Court,  in  such  sum  as 
the  Court  shall  order,  the  condition  of  said  bond  being  the  pay- 
ment to  the  alleged  bankrupt,  in  case  the  petition  is  dismissed, 
of  all  costs,  expenses  and  damages  occasioned  by  the  seizure 
of  the  alleged  bankrupt's  property. 

Who  May  Become  Bankrupts. 

The  fourth  section  of  the  Federal  Bankruptcy  act  specifies 
the  class  of  persons  who  may  acquire  protection  under  the  law, 
either  as  a  voluntary  or  involuntary  bankrupt,  as  follows : 

"Any  person  who  owes  debts,  except  a  corporation,  shall 
be  entitled  to  the  benefits  of  this  act  as  a  voluntary  bankrupt. 

"Any  natural  person,  except  a  wage-earner  or  a  person 
engaged  chiefly  in  farming  or  the  tillage  of  the  soil,  any 
unincorporated  company  and  any  corporation  engaged  principally 
in  manufacturing,  trading,  printing,  publishing  or  mercantile 
pursuits,  owing  debts  to  the  amount  of  $1,000  or  over,  may  be 
adjudged  an  involuntary  bankrupt  upon  default  or  an  impartial 
trial,  and  shall  be  subject  to  the  provisions  and  entitled  to  the 
benefits  of  this  act.  Private  bankers,  but  not  national  banks  or 
banks  incorporated  under  State  or  Territorial  laws,  may  be 
adjudged  involuntary  bankrupts." 

The  amendment  of  1903  further  provides  that  the  bankruptcy 
of  a  corporation  shall  not  release  its  officers,  directors  or  stock- 
holders, as  such  from  any  liability  under  the  laws  of  a  State, 
Territory  or  of  the  United  States. 

Although  it  has  been  held  that  an  infant  is  entitled  to  the 
benefit  of  the  bankruptcy  act,  the  better  opinion  appears  to  be 
that  a  petition  in  bankruptcy  can  neither  be  filed  by  nor  against  a 
minor.  An  alien  may  file  a  petition  in  bankruptcy  as  soon  as  he 
has  acquired  the  necessary  residence  in  the  United  States.  A 
married  woman  may,  in  those  States  wherein  they  are  given 
power  to  contract,  become  a  bankrupt  and  secure  the  benefits  of 
the  act. 

Any  person  owing  debts  may  become  a  voluntary  bankrupt, 

18 


194  BANKRUPTCY 

but  to  institute  involuntary  proceedings  the  debtor  must,  under 
the  act,  owe  at  least  $i,cxx).  There  are  two  classes  of  persons 
who  cannot  be  petitioned  against — wage-earners  and  farmers.  A 
wage-earner  has  been  held  to  be  any  person  who  works  for 
wages,  salary  or  hire  at  a  compensation  not  exceeding  $1,500  per 
annum.  If  a  man  is  engaged  in  farming  as  the  occupation  which 
he  considers  of  paramount  importance  to  his  welfare  he  cannot 
be  adjudged  an  involuntary  bankrupt.  The  class  of  corporations 
which  may  be  adjudged  bankrupt  is  specially  limited  by  the  act, 
principally  to  trading  corporations  or  those  engaged  in  mercantile 
pursuits.  A  livery  stable  company,  a  sanitarium  and  a  mercantile 
agency  have  been  held  to  be  trading  corporations,  while  a 
theatrical  company,  a  saloon  and  restaurant  company  and  a 
mutual  fire  insurance  company  have  been  held  not  to  be  trading 
corporations,  and  hence  not  capable  of  going  through  bankruptcy. 
If  a  corporation  has  been  discharged  in  bankruptcy  its 
creditors  are  not  prevented  from  proceeding  in  a  State  Court 
against  the  officers  and  stockholders  to  satisfy  their  liability. 

Partners. 

In  view  of  the  large  number  of  partnerships  existing  it  is 
important  to  determine  how  they  are  affected  by  bankruptcy 
proceedings. 

The  law  provides  that  a  partnership,  during  the  continuation 
of  the  partnership  business  or  after  its  dissolution,  and  before 
its  affairs  are  finally  settled,  may  be  adjudged  a  bankrupt.  It 
will  be  recalled  that  in  our  study  of  partnerships  we  stated  that 
the  law  of  Pennsylvania  regarded  a  partnership  as  a  collection  of 
individuals,  and  could  not  be  considered  separate  and  distinct  from 
the  members  composing  it.  But  so  far  as  bankruptcy  is 
concerned,  a  partnership  is  treated  as  a  legal  entity,  the  identity 
of  the  various  partners  in  bankruptcy  being  lost,  and  therefore  the 
individual  partners  and  the  partnership  are  entities  separate  and 
distinct  from  each  other.  Thus,  one  or  more  partners  may  file 
their  petition  in  bankruptcy  without  making  the  others  parties, 
but  notice  of  the  pendency  of  the  proceedings  must  be  given  to 
the  other  partners.  Where  two  partners  of  a  firm  of  three  have 
filed  a  petition  to  have  the  firm  put  in  bankruptcy,  the  District 
Court  of  the  United  States  has  jurisdiction  over  the  partnership 
property,  even  though  the  third  partner  is  proceeding  in  a 
State  Court  for  a  settlement  of  the  partnership  affairs. 

The  creditors  of  the  partnership  shall  appv>int  the  trustees 
(the  officer  who  takes  title  to  all  property  be>'onging  to  the 


\ 

BANKRUPTCY  195 

partnership).  In  other  regards  the  estate  is  administered  as 
provided  for  in  any  other  estate. 

The  general  rule  that  whatever  a  partner  does  within  the 
scope  of  the  partnership  binds  the  other  partners,  applies  to  the 
commission  of  acts  of  bankruptcy.  The  application  for  or  the 
appointment  of  a  receiver  of  a  partnership  is  an  act  of  bankruptcy 
the  same  as  in  cases  of  corporations. 

The  Court  of  Bankruptcy  which  has  jurisdiction  of  one 
of  the  partners  may  have  jurisdiction  of  all  the  partners  and 
of  the  administration  of  the  partnership  and  individual  property. 
The  trustee  appointed  is  obliged  to  keep  separate  accounts  of 
the  property  belonging  to  the  partnership  and  the  property 
belonging  to  the  individual  partners  thereof. 

The  expenses  of  administration  are  apportioned  between  the 
partnership  estate  and  the  estate  of  the  individual  partners,  as 
the  Court  shall  determine. 

If  one  member  of  a  firm  has  a  claim  against  it,  the  same 
may  be  proved  in  bankruptcy  against  the  firm,  and  vice  versa. 
A  solvent  partner  cannot,  however,  prove  a  claim  against  the 
separate  estate  of  his  bankrupt  partner  until  all  the  partnership 
creditors  have  been  paid  in  full.  The  Court  is  given  power  to 
marshal  the  assets  of  the  partnership  estate  and  the  estates  of  the 
individual  partners  so  as  to  prevent  preferences  and  secure  the 
equitable  distribution  of  the  property  of  the  several  estates. 

Distribution. 

The  law  provides  that  the  net  proceeds  realized  from  a  sale 
of  partnership  property  shall  be  appropriated  to  the  payment  of 
partnership  debts,  and  the  net  proceeds  of  the  individual  estate 
of  each  partner  to  the  payment  of  his  individual  debts.  Should 
any  surplus  remain  of  the  property  of  any  partner  after  paying 
his  individual  debts,  such  surplus  shall  be  added  to  the  partnership 
assets  and  be  applied  to  the  payment  of  the  partnership  debts. 
Should  any  surplus  of  the  partnership  property  remain  after 
paying  the  partnership  debts,  such  surplus  shall  be  added  to 
the  assets  of  the  individual  partners  in  the  proportion  of  their 
respective  interests  in  the  partnership. 

If  one  or  more,  but  not  all,  of  the  partners  become  bank- 
rupt, the  partnership  property  shall  not  be  administered  in 
bankruptcy,  unless  by  consent  of  the  partner  or  partners  who 
were  not  adjudged  bankrupt.  The  partner  or  partners  not 
adjudged  bankrupt  shall  wind  up  the  partnership  business  as 


196  BANKRUPTCY 

expeditiously  as  possible  and  account  for  the  interest  of  the 
partner  or  partners  who  have  been  adjudged  bankrupt. 

Exemptions  of  Bankrupts. 

The  sixth  section  of  the  Bankruptcy  act  provides  that  it 
"shall  not  aifect  the  allowance  to  bankrupts  of  the  exemptions 
which  are  prescribed  by  the  State  laws  in  force  at  the  time  of 
the  filing  of  the  petition,  in  the  State  wherein  they  have  had 
their  domicile  for  the  six  months  or  the  greater  portion  thereof 
immediately  preceding  the  filing  of  the  petition."  A  Court  of 
Bankruptcy  has  jurisdiction  to  determine  the  merits  of  the  bank- 
rupt's claim  to  exemptions,  but  has  no  jurisdiction  over  the 
property.  The  individual  members  of  a  bankrupt  partnership  are 
not  entitled  to  exemptions  out  of  the  partnership  property.  Their 
interest,  as  individuals,  in  the  joint  property,  is  an  interest  in  the 
surplus  only.  A  bankrupt  may  expressly  or  impliedly  waive  his 
exemption.  If  a  bankrupt  fails  to  claim  his  property  which  is 
exempted  by  law  at  the  proper  time,  the  law  implies  that  he  has 
waived  this  right.  He  may  expressly  waive  exemption  in 
writing. 

Duties  of  Bankrupts. 

The  law  imposes  certain  duties  upon  a  bankrupt  which  it  is 
essential  to  observe.  He  must  attend  the  first  meeting  of  his 
creditors  if  ordered  to  do  so  by  the  Court. 

If  he  resides  more  than  one  hundred  and  fifty  miles  from 
the  place  of  meeting,  special  cause  must  be  shown  to  require 
his  attendance,  and  if  ordered  to  attend  he  is  entitled  to  his  actual 
expenses.  He  must  also  attend  the  hearing  upon  his  application 
for  a  discharge,  and  comply  with  all  lawful  orders  of  the  Court. 
He  is  required  to  examine  the  correctness  of  all  proofs  of  claim 
filed  against  his  estate.  As  a  rule  the  bankrupt  sits  by  at  the 
call  of  claims  on  the  first  meeting  of  creditors  and  informs  the 
referee  whether  they  are  correct.  He  must  execute  and  deliver 
such  papers  as  shall  be  ordered  by  the  Court,  such,  for  example, 
as  the  assignment  of  a  license  and  the  transfer  of  an  insurance 
policy.  He  must  also  execute  to  the  trustee  in  bankruptcy 
transfers  of  all  his  property  in  foreign  countries.  It  is  the 
duty  of  a  bankrupt  to  immediately  inform  his  trustee  of  any 
attempt  by  his  creditors  or  other  persons  to  evade  the  provisions 
of  the  Bankruptcy  act,  and  in  case  anyone  has  to  his  knowledge 
proved  a  false  claim  he  must  disclose  this  fact  at  once  to  the 


BANKRUPTCY  197 

trustee.  One  of  the  most  important  duties  required  of  a  bankrupt 
is  to  prepare,  make  oath  to  and  file  in  Court  within  ten  days  after 
he  has  been  adjudged  a  bankrupt,  if  the  proceedings  are 
involuntary,  and  if  voluntary,  to  file  with  the  petition,  a  schedule 
of  his  property,  showing  the  amount  and  kind  of  property,  the 
location  thereof,  its  money  value  in  detail,  and  a  list  of  his 
creditors,  showing  their  residence,  if  known,  and  if  unknown 
that  fact  is  to  be  stated,  the  amounts  due  each  of  them,  the 
consideration  thereof,  the  security  held  by  them,  if  any  and  a 
claim  for  such  exemption  as  he  may  be  entitled  to.  This  schedule 
must  be  made  in  triplicate.  A  bankrupt  is  also  required  to  sub- 
mit to  an  examination  concerning  the  conducting  of  his  business, 
the  cause  of  his  bankruptcy,  his  dealings  with  his  creditors  and 
other  persons,  the  amount,  kind,  whereabouts  of  his  property, 
and  in  addition  all  matters  which  may  affect  the  administration 
and  settlement  of  his  estate.  In  order  to  aid  a  full  disclosure  of 
all  necessary  facts,  the  law  provides  that  no  testimony  given  by 
a  bankrupt  shall  be  offered  in  evidence  against  him  in  any  criminal 
proceeding. 

The  schedule  of  a  bankrupt's  property,  debts,  creditors,  etc., 
may  always  be  amended  if  incomplete  or  defective.  The  exam- 
ination of  a  bankrupt  is  usually  reduced  to  writing  and  signed 
by  him. 

Death  or  Insanity  of  Bankrupts. 

The  proceedings  in  bankruptcy  do  not  end  upon  the  death 
or  insanity  of  a  bankrupt,  but  the  same  shall  be  conducted  and 
concluded  in  the  same  manner  as  though  he  had  not  died  or 
become  insane.  If  a  bankrupt  become  insane,  a  committee  will 
be  appointed  to  represent  his  interests.  The  death  of  a  bankrupt 
will  not  prevent  his  discharge  therefrom,  even  though  the  require- 
ment calling  for  the  personal  presence  of  the  bankrupt  cannot  be 
complied  with.  In  event  of  the  death  of  a  bankrupt,  the  law 
provides  that  his  widow  and  children  shall  be  entitled  to  all 
rights  and  dower  and  allowance  as  exist  by  the  laws  of  the 
State  of  the  bankrupt's  residence. 

Protection  and  Detention  of  Bankrupts. 

A  bankrupt  is  exempted  from  arrest  upon  any  civil  process, 
with  the  two  following  exceptions:  (a)  when  such  arrest  is 
by  order  of  a  Court  of  Bankruptcy  for  contempt  or  disobedience 
of  its  lawful  orders,  or  (b)  when  the  warrant  is  issued  from  a 


198  BANKRUPTCY 

State  Court  having  jurisdiction  and  served  within  such  State, 
upon  a  debt  or  claim  from  which  his  discharge  in  bankruptcy 
would  not  be  a  release,  and  in  such  case  he  shall  be  exempt  from 
such  arrest  when  in  attendance  upon  a  Court  of  Bankruptcy  or 
engaged  in  the  performance  of  a  duty  imposed  by  this  act. 

Upon  satisfactory  proof  by  the  affidavits  of  at  least  two 
persons  that  a  bankrupt  is  about  to  leave  the  district  in  which  he 
resides,  and  that  his  departure  would  defeat  the  proceedings  in 
bankruptcy,  the  Court  may  issue  a  warrant  under  which  the 
bankrupt  may  be  taken  in  custody  and  detained  not  longer  than 
ten  days.  An  application  to  detain  a  bankrupt  can  be  made 
only  between  the  time  of  filing  the  petition  and  the  expiration  of 
one  month  after  the  qualification  of  the  trustee. 

If  a  warrant  for  the  apprehension  of  a  bankrupt  has  been 
issued  and  he  shall  be  found  within  the  jurisdiction  of  a  Court 
other  than  the  one  issuing  the  warrant,  he  may  be  extradited 
in  the  same  manner  as  persons  under  indictment  are  extradited 
from  one  jurisdiction  to  another. 

Suits  by  and  Against  Bankrupts. 

Any  suit  at  law  which  is  founded  on  a  claim  from  which  a 
discharge  in  bankruptcy  would  be  a  release,  and  which  is  pending 
against  a  person  at  the  time  of  the  filing  of  a  petition  against 
him,  shall  be  stayed  until  after  an  adjudication  or  the  dismissal 
of  the  petition ;  if  such  action  may  be  further  stayed  until  twelve 
months  after  the  date  of  such  adjudication,  or  if  within  that 
time  such  person  applies  for  a  discharge,  then  until  the  question 
of  such  discharge  is  determined.  The  power  to  stay  suits  con- 
cerning the  person  or  property  of  the  bankrupt  is  essential  to 
the  orderly  administration  of  a  bankruptcy  law,  the  purpose  of 
such  stays  being  to  prevent  the  harassment  of  the  bankrupt 
by  suits,  pending  a  discharge  which  will  be  a  bar.  Only  such  suits 
as  are  founded  upon  claims  from  which  a  discharge  would  be  a 
release  can  be  stayed. 

The  trustee  in  bankruptcy  may,  upon  order  of  the  Court, 
defend  or  prosecute  suits  brought  by  or  against  the  bankrupt 
estate,  but  no  suit  can  be  brought  against  the  trustee  of  a  bank- 
rupt estate  subsequent  to  two  years  after  the  estate  has 
been  closed. 

Compositions  with  Creditors. 

After  a  bankrupt  has  been  examined  in  open  Court  or  at 
a  meeting  of  his  creditors  and  filed  in  Court  a  schedule  of  his 
property  and  a  list  of  his  creditors,  he  may  offer  terms  of  com- 


BANKRUPTCY  199 

position  to  them.  The  theory  of  a  composition  is  that  the  cash 
value  of  the  bankrupt's  estate  is  to  be  substantially  divided  among 
the  creditors  in  proportion  to  their  respective  debts.  Whether 
it  is  expedient  to  accept  the  percentage  offered  by  a  bankrupt  is  a 
question  for  the  creditors  to  determine. 

Before  an  application  to  confirm  a  composition  with  credit- 
ors can  be  filed  it  must  be  accepted  in  writing  by  a  majority  in 
number  of  all  creditors  whose  claims  have  been  allowed,  which 
number  must  also  represent  a  majority  in  amount  of  such  claims. 
It  is  further  necessary  before  filing  such  an  application  to 
deposit  in  Court  the  consideration  to  be  paid  to  creditors  and  the 
money  necessary  to  pay  debts  entitled  to  priority  and  the  expenses 
of  the  proceedings.  A  date  and  place  is  fixed  for  a  hearing  upon 
such  an  application,  when  and  where  objections,  if  any,  may  be 
made  to  the  confirmation  of  the  composition.  A  Court  will  con- 
firm a  composition  if  satisfied  that  it  is  for  the  best  interests 
of  the  creditors;  that  the  bankrupt  has  not  been  guilty  of  any 
of  the  acts  or  failed  to  perform  any  of  the  duties  which  would 
be  a  bar  to  his  discharge;  and  that  the  offer  and  its  acceptance 
are  made  in  good  faith.  If  the  composition  is  confirmed  the  con- 
sideration shall  be  distributed  as  the  Court  shall  direct  and  the 
case  be  dismissed.  If  it  is  not  confirmed,  the  estate  must  be 
administered  in  bankruptcy  in  the  usual  manner. 

Thus  a  bankrupt's  estate  can  be  wound  up  in  two  ways, 
either  by  distribution  in  bankruptcy,  or  by  distribution  under  a 
composition  with  creditors.  Where  a  composition  proposed  by 
a  bankrupt  has  been  accepted  by  his  creditors  and  approved  by 
the  Court,  the  bankrupt  is  thereby  discharged  only  from  the 
claims  of  the  creditors  whose  names,  addresses  and  debts  arc 
placed  on  the  statement  produced  at  the  meeting  of  creditors. 
A  creditor  whose  name  did  not  appear  in  the  statement  of  the 
debtor  or  otherwise  in  composition  proceedings,  and  whose  debt 
is  not  mentioned,  is  not  bound  thereby.  A  composition  with  cred- 
itors, when  duly  confirmed  by  the  Court,  operates  as  a  discharge 
of  the  bankrupt.  The  acceptance  of  a  composition  from  the 
principal  debtor  does  not  discharge  any  party  collaterally  liable 
for  the  same  debt. 

A  bankrupt  from  whom  a  composition  is  received  is  neces- 
sarily at  liberty  to  deal  with  his  assets  as  he  chooses,  the  result 
of  a  composition  being  that  the  legal  title  to  the  effects  of  the 
bankrupt  remains  in  him. 

To  further  protect  creditors  against  fraud  by  the  bankrupt, 
the  law  provides  that  after  a  composition  has  been  confirmed, 


20O  BANKRUPTCY 

it  may  be  set  aside  and  the  case  reinstated  in  bankruptcy,  upon 
the  application  of  parties  in  interest  filed  within  six  months  after 
the  composition  has  been  confirmed.  To  obtain  this  privilege 
it  must  be  made  to  appear  that  fraud  was  practiced  in  the  pro- 
curing of  such  composition,  and  that  the  knowledge  thereof  has 
come  to  the  petitioners  since  the  confirmation  of  such  composition. 
If  a  composition  is  set  aside,  title  to  the  bankrupt's  property 
reverts  in  the  trustee  and  all  property  acquired  by  the  bank- 
rupt is  applied  in  payment  of  debts  contracted  while  the  compo- 
sition was  in  force.  Everyone  is  restored  to  the  rights  and 
remedies  which  existed  at  the  time  the  composition  was  confirmed. 

When  a  Discharge  in  Bankruptcy  will  be  Granted. 

Having  pointed  out  what  constitutes  bankruptcy,  by  and 
against  whom  petitions  in  bankruptcy  may  be  filed  together  with 
the  rights  and  duties  of  a  bankrupt,  we  shall  next  inquire  how  a 
bankrupt  may  obtain  his  discharge. 

At  any  time  after  one  month,  and  not  later  than  twelve 
months  subsequent  to  being  adjudged  a  bankrupt,  the  bankrupt 
may  file  an  application  for  a  discharge  in  the  Court  of  Bankruptcy 
in  which  the  proceedings  are  pending.  If  the  bankrupt  is  unavoid- 
ably prevented  from  filing  it  within  the  time  limited,  such  an 
application  for  discharge  may  be  filed  within,  but  not  after  the 
expiration  of,  the  next  six  months. 

The  Court  shall  hear  the  application  for  a  discharge,  and 
such  proofs  and  pleas  as  may  be  made  in  opposition  thereto  by 
parties  in  interest.  After  investigating  the  merits  of  the  appli- 
cation, the  bankrupt  will  be  discharged  unless  he  has  committed 
an  offense  punishable  by  imprisonment,  or  destroyed,  concealed 
or  failed  to  keep  books  of  account  or  records  from  which  his 
condition  might  be  ascertained  (with  intent  to  conceal  his  true 
financial  condition),  or  obtained  property  on  credit  from  any  per- 
son upon  a  materially  false  statement  in  writing  made  to  such 
person  for  the  purpose  of  obtaining  such  property  on  credit;  or 
at  any  time  subsequent  to  the  first  day  of  the  four  months  imme- 
diately preceding  the  filing  of  the  petition,  transferred,  removed, 
destroyed  or  concealed  any  of  his  property  with  intent  to  defraud 
his  creditors;  or  in  voluntary  proceedings  been  granted  a  dis- 
charge in  bankruptcy  within  six  years ;  or  in  the  course  of  the 
proceedings  in  bankruptcy  refused  to  obey  any  lawful  order  of 
or  to  answer  any  material  question  approved  by  the  Court. 

To  sustain  an  objection  to  a  discharge  on  the  ground  of 
concealing  property  it  must  be  shown  that  the  concealment  was 
by  the  bankrupt,  while  a  bankrupt,  from  his  trustee,  of  property 


BANKRUPTCY  JOI 

belonging  to  the  estate  in  bankruptcy,  and  that  such  concealment 
was  done  knowingly  and  fraudulently. 

The  objection  to  a  discharge  on  the  ground  that  the  bank- 
rupt obtained  property  on  credit  on  a  false  written  statement 
of  his  financial  condition,  is  an  amendment  made  in  1903  to  the 
original  act  of  1898.  A  man  should  not  be  entitled  to  be  released 
from  his  indebtedness  contracted  upon  his  own  fals^  statements. 
The  object  of  the  bankruptcy  law  is  to  assist  and  protect  honest 
traders,  and  the  provisions  of  the  act  cannot  be  availed  of  to 
aid  in  the  perpetration  of  fraud. 

A  man  cannot  become  a  voluntary  bankrupt  more  than  once 
in  six  years. 

An  application  to  revoke  a  discharge  may  be  filed  at  any 
time  within  one  year  after  a  discharge  has  been  granted.  Such 
an  application  must  be  filed  by  a  party  in  interest,  and  will  be 
allowed  upon  proof  of  any  fraud  of  which  the  bankrupt  is  guilty, 
and  that  the  actual  facts  did  not  warrant  the  discharge. 

Debts  Affected  by  a  Discharge. 

A  discharge  in  bankruptcy  will  release  a  bankrupt  from 
all  of  his  provable  debts,  with  the  following  exceptions: 

(i)  Debts  due  for  taxes  levied  by  the  United  States, 
States,  county,  district  or  municipality  in  which  the  bankrupt 
resides. 

(2)  Debts  which  are  liabilities  for  obtaining  property  by 
false  pretenses,  or  for  wilful  and  malicious  injuries  to  the  person 
or  property  of  another,  or  for  alimony  due  or  to  become  due,  or 
for  maintenance  and  support  of  wife  or  child,  or  for  seduction 
of  an  unmarried  female,  or  for  criminal  conversation. 

(3)  Debts  which  have  not  been  duly  scheduled  in  time 
for  proof  and  allowance. 

(4)  Debts  created  by  the  bankrupt's  fraud,  embezzlement, 
misappropriation  or  defalcation  while  acting  as  an  officer  or  in 
any  fiduciary  (trust)  capacity. 

Debts  contracted  subsequently  to  the  filing  of  the  petition 
in  bankruptcy  are  not  affected  by  a  discharge. 

The  effect  of  a  discharge  in  bankruptcy  being  merely  to 
suspend  the  right  of  action  against  the  debtor  upon  all  provable 
debts  not  falling  within  the  excepted  classes,  the  debt  nevertheless 
remains  and  the  moral  obligation  to  pay  it  forms  a  sufficient  con- 
sideration for  a  new  promise  to  make  such  payment.  A  discharge 
in  bankruptcy  relates  back  to  the  adjudication  of  the  fact  of 
bankruptcy,  and  a   subsequent  promise  to  pay  a  debt  is  not 


202  BANKRUPTCY 

required  to  be  made  after  the  discharge,  but  is  sufficient  if  made 
between  the  adjudication  and  the  discharge.  The  original  debt, 
however,  is  revived  only  as  of  the  date  of  the  new  promise,  and 
where  judgment  is  obtained  upon  the  latter,  the  debtor  is  entitled 
to  claim  the  exemption  provided  by  the  law  in  force  at  the  latter 
date. 

Process,   Pleadings  and  Adjudications. 

If  a  petition  for  involuntary  bankruptcy  is  filed  it  must  be 
served,  with  a  writ  of  subpoena,  upon  the  bankrupt,  and  if  per- 
sonal service  cannot  be  made,  then  notice  of  the  proceedings 
must  be  given  by  publication,  which,  unless  otherwise  ordered 
by  the  Court,  must  not  be  published  more  than  once  a  week  for 
two  consecutive  weeks. 

The  bankrupt  or  any  creditor  shall  appear  and  plead  to 
the  petition  within  five  days  after  the  return  day,  and  controvert 
the  facts  alleged  in  the  petition.  The  Court  shall  then  determine 
the  issues  presented  by  the  pleadings  and  make  the  adjudication 
or  dismiss  the  petition,  as  the  facts  shall  warrant. 

Upon  filing  a  voluntary  petition,  the  Court  shall  hear  the 
same  and  either  make  the  adjudication  or  dismiss  the  petition. 
If  the  Judge  is  absent  from  the  district,  or  the  division  of  the 
district  in  which  the  petition  is  filed,  the  Clerk  of  the  Court  shall 
forthwith  refer  the  case  to  a  referee. 

An  alleged  bankrupt  against  whom  an  involuntary  petition 
has  been  filed  is  entitled  to  have  a  trial  by  jury  upon  the  question 
of  his  insolvency  and  any  act  of  bankruptcy  he  is  alleged  to 
have  committed. 

A  Court  of  Bankruptcy  has  the  power,  upon  application  of 
any  officer,  bankrupt  or  creditor  to  require  any  designated  per- 
son, including  the  bankrupt  and  his  wife,  to  appear  in  Court  or 
before  a  referee  and  be  examined  concerning  the  acts,  conduct 
or  property  of  the  bankrupt  whose  estate  is  in  process  of 
administration.  A  bankrupt's  wife  can  only  be  examined  upon 
facts  concerning  business  transacted  by  her  or  to  which  she  is  a 
party,  and  to  determine  the  fact  whether  she  has  transacted  or 
been  a  party  to  any  business  of  the  bankrupt. 

Referees. 

The  twenty-second  section  of  the  act  of  1898,  provides  that 
after  a  person  has  been  adjudged  a  bankrupt,  the  Court  may 
cause  the  trustee  to  proceed  with  the  administration  of  the 
estate,  or  refer  the  case  to  a  referee  with  either  general  or  lim- 


BANKRUPTCY  203 

ited  power  to  act  upon  the  case  and  make  a  report.  For  the 
convenience  of  the  parties,  the  Court  may  transfer  a  case  from 
one  referee  to  another.  Under  this  section  of  the  act,  a  bankrupt's 
estate  may  be  administered  under  the  direct  supervision  of  the 
Judge  and  without  an  order  of  reference.  In  such  a  case  a  meet- 
ing of  creditors  would  be  called  first,  and  after  the  election  of 
the  trustee,  the  case  would  proceed  in  the  usual  manner.  Ordi- 
narily, however,  all  cases  are  referred  to  a  referee  who  is  given 
general  powers. 

A  Court  of  Bankruptcy  shall  within  its  territorial  limits 
appoint  referees,  each  for  a  term  of  two  years.  The  qualifications 
of  a  referee  are  that  he  shall  not  hold  any  office  of  profit  or 
emolument  under  the  laws  of  the  United  States  or  of  any  State, 
other  than  Commissioner  of  Deeds,  Justice  of  the  Peace,  master 
in  chancery  or  notary  public;  he  must  not  be  related  by  consan- 
guinity or  affinity  within  the  third  degree  as  determined  by  the 
common  law,  to  any  of  the  Judges  of  the  Courts  of  Bankruptcy 
or  Circuit  Courts  of  the  United  States,  or  of  the  Justices  or 
Judges  of  the  Appellate  Courts  of  the  districts  wherein  they 
may  be  appointed ;  they  must  be  residents  of  and  have  their 
offices  in  the  territorial  districts  for  which  they  are  to  be 
appointed. 

Referees  within  their  districts  are  vested  with  authority  to 
consider  all  petitions  in  bankruptcy  referred  to  them  and  make 
the  adjudications  or  dismiss  the  petitions,  to  administer  oaths 
to  and  examine  persons  as  witnesses,  and  require  the  produc- 
tion of  documents  to  be  used  as  evidence  in  proceedings  before 
them ;  to  perform  such  duties,  except  as  to  questions  arising 
on  applications  of  bankrupts  for  compositions  with  creditors 
and  discharges  as  are  imposed  on  Courts  of  Bankruptcy,  and 
to  authorize  the  employment  of  stenographers. 

It  shall  be  the  duty  of  referees  to  declare  dividends  and  to 
deliver  to  the  trustees  dividend  sheets  showing  the  dividends 
declared  and  to  whom  payable ;  to  examine  all  schedules  of  prop- 
erty and  lists  of  creditors  filed  by  bankrupts  and  cause  such  as  are 
incomplete  or  defective  to  be  amended ;  to  furnish  such  informa- 
tion concerning  the  estates  in  process  of  administration  before 
them  as  may  be  requested  by  the  parties  in  interest ;  prepare  and 
file  the  schedules  of  property  and  lists  of  creditors  required  to 
be  filed  by  the  bankrupts,  or  cause  the  same  to  be  done,  when  the 
bankrupts  fail  to  do  so;  make  up  records  of  the  evidence  given 
in  tontested  matters  arising  before  them,  together  with  their 
findings,  and  submit  same  to  the  Courts;  and  whenever  their 


204  BANKRUPTCY 

respective  offices  are  in  the  same  town  or  city,  call  upon  tfie 
Clerk  of  the  Court  of  Bankruptcy  and  obtain  all  papers  filed  in 
cases  which  have  been  referred  to  them. 

Referees  cannot  act  in  cases  in  which  they  are  directly 
or  indirectly  interested,  practice  as  attorneys  in  any  bankruptcy 
proceedings,  or  purchase,  directly  or  indirectly,  any  property 
of  an  estate  in  bankruptcy. 

Referees  are  entitled  to  be  paid  out  of  the  bankrupt  estate 
fifteen  dollars  in  the  first  instance,  twenty-five  cents  for  every 
proof  of  claim  filed  for  allowance,  and  one  per  cent,  commission 
on  all  moneys  disbursed  to  creditors  by  the  trustee,  or  one-half 
of  one  per  cent,  on  the  amount  to  be  paid  to  creditors  upon  the 
confirmation  of  a  composition. 

If  in  any  proceeding  before  a  referee  a  person  shall  disobey 
or  resist  any  order,  misbehave,  neglect  to  produce  any  document 
when  ordered  to  do  so,  or  refuse  to  appear  and  take  the  oath 
of  a  witness  and  be  examined,  the  referee  shall  report  the  fact 
to  the  Court  and  the  guilty  party  may  be  punished  for  contempt 
of  Court. 

Trustees. 

It  is  the  function  of  the  creditors  of  a  bankrupt  estate  at 
their  first  meeting  after  the  adjudication  to  appoint  one  or  three 
trustees  of  such  estates.  Two  trustees  cannot  be  appointed.  It 
must  be  either  one  or  three.  If  the  creditors  fail  to  appoint  a 
trustee  or  trustees  the  Court  shall  do  so. 

Any  individual  competent  to  perform  the  duties  of  trustee, 
residing  in  the  same  judicial  district,  may  be  appointed.  Any 
corporation  authorized  by  its  charter  to  act  as  such  may  also 
be  selected,  provided  it  has  an  office  in  the  judicial  district  in 
which  it  is  appointed. 

The  duties  of  trustees  are  to  account  for  and  pay  over  to  the 
estates  under  their  control  all  interest  received  by  them  upon 
property  of  the  bankrupt  estate,  to  collect  and  reduce  to  money 
the  property  of  the  estates  and  close  up  the  estate  as  quickly  as 
possible;  to  deposit  all  money  received  by  them  in  one  of  the 
designated  depositories  and  to  disburse  same  by  check  or  draft; 
to  furnish  such  information  concerning  the  estates  of  which  they 
are  trustees  as  may  be  requested  by  parties  in  interest;  to  keep 
regular  accounts  showing  all  amounts  received  and  from  what 
sources,  and  the  amounts  expended  by  them  and  on  what 
accounts ;  to  submit  before  the  final  meeting  of  creditors  detailed 
statements  of  the  administration  of  the  estates;  to  make  final 


BANKRUPTCY  205 

reports  and  file  final  accounts  with  the  Court  fifteen  days  before 
the  day  fixed  for  the  final  meeting  of  the  creditors ;  to  pay  divi- 
dends within  ten  days  after  they  are  declared  by  the  referees; 
to  report  to  the  Court  the  condition  of  the  estates  and  the  amount 
of  money  on  hand  within  the  first  month  after  their  appointment 
and  every  two  months  thereafter ;  and  to  set  apart  the  bankrupt's 
exemptions  as  soon  as  practicable  after  their  appointment. 

If  three  trustees  are  appointed,  the  concurrence  of  two  is 
required  to  render  valid  any  act  concerning  the  administration 
of  the  estate.  The  compensation  of  trustees  is  fixed  by  the 
Courts  upon  a  graduated  scale,  according  to  the  value  of  the 
estate.  The  accounts  and  papers  of  trustees  are  open  to  inspec- 
tion by  the  officers  of  the  Court  and  all  parties  in  interest.  Both 
referees  and  trustees  are  required  to  furnish  bonds,  with  two 
sufficient  sureties,  for  the  faithful  performance  of  their  official 
duties. 

If  a  party  is  dissatisfied  with  the  judgment  rendered  by  a 
Court  of  Bankruptcy,  an  appeal  may  be  taken  to  the  United  States 
Circuit  Court  of  Appeals  in  the  following  cases:  (i)  From  a 
judgment  adjudging  or  refusing  to  adjudge  the  defendant  a 
bankrupt;  (2)  from  a  judgment  allowing  or  rejecting  a  debt 
or  claim  of  $500  or  over;  (3)  from  a  judgment  granting  or 
denying  a  discharge.  A  further  appeal  may  be  had  to  the  Supreme 
Court  of  the  United  States  only  in  cases  where  the  amount  in 
controversy  exceeds  the  sum  of  $2,000  and  the  question  involved 
is  a  constitutional  one,  or  where  some  Justice  of  the  Supreme 
Court  of  the  United  States  shall  certify  that  in  his  opinion  the 
determination  of  the  question  or  questions  involved  in  the  allow- 
ance or  rejection  of  such  claim  is  essential  to  a  uniform 
construction  of  the  bankruptcy  law  throughout  the  United  States. 

Arbitration  of  Controversies. 

The  law  makes  provision,  in  case  of  any  controversy  aris- 
ing in  the  settlement  of  the  estate,  whereby  the  trustee  may  sub- 
mit the  same  to  arbitration.  Three  arbitrators  shall  be  chosen 
by  mutual  consent,  or  one  by  the  trustee,  one  by  the  other  party 
to  the  controversy  and  the  third  by  the  two  thus  chosen.  If 
they  fail  to  agree  upon  a  third  arbitrator  within  five  days  after 
their  appointment,  the  Court  shall  appoint  the  third  arbitrator. 

The  findings  of  the  arbitrators  or  a  majority  of  them,  upon 
the  questions  in  dispute,  must  be  filed  in  Court  and  are  given  like 
force  and  eflFect  as  the  verdict  of  a  jury. 

The  trustee  may  compromise  any  controversy  arising  in  the 


2o6  BANKRUPTCY 

administration  of  the  estate  upon  such  terms  as  he  may  deem  for 
the  best  interests  of  the  estate,  but  such  compromises  must  be 
made  with  the  approval  of  the  Court. 

Offenses. 

/ 

As  ignorance  of  the  law  is  no  defense,  it  is  of  advantage 
for  everyone  to  understand  what  constitute  offenses  under  the 
Bankruptcy  Act,  and  the  punishment  therefor. 

Upon  conviction  of  the  offense  of  having  knowingly  and 
fraudulently  appropriated  to  his  own  use,  embezzled,  spent  or 
unlawfully  transferred  any  property  or  secreted  or  destroyed 
any  document  belonging  to  a  bankrupt  estate  which  came  into 
his  charge  as  trustee,  a  person  shall  be  punished  by  imprisonment 
for  a  period  not  to  exceed  five  years. 

Upon  conviction  of  any  one  of  the  five  following  offenses 
a  person  shall  be  punished  by  imprisonment  for  a  period  not  to 
exceed  two  years,  to  wit :  The  offense  of  having  knowingly  and 
fraudulently  concealed  while  a  bankrupt,  or  after  his  discharge, 
from  his  trustees  any  of  the  property  belonging  to  his  estate  in 
bankruptcy;  or  made  a  false  oath  or  account  in  any  proceeding 
in  bankruptcy;  presented  under  oath  any  false  claim  for  proof 
against  the  estate  of  a  bankrupt,  or  used  any  such  claim  in  com- 
position personally  or  by  agent,  proxy  or  attorney;  or  received 
any  material  amount  of  property  from  a  bankrupt  after  the  filing 
of  the  petition,  with  intent  to  defeat  this  act;  or  extorted  or 
attempted  to  extort  any  money  or  property  from  any  person  as 
a  consideration  for  acting  or  forbearing  to  act  in  bankruptcy 
proceedings. 

A  referee  shall  forfeit  his  office  and  be  a  subject  to  a  fine 
not  exceeding  five  hundred  dollars  if  he  acts  in  a  case  in  which 
he  is  directly  or  indirectly  interested,  or  purchased  directly  or 
indirectly  any  property  of  the  estate  in  bankruptcy  of  which 
he  is  referee,  or  refused  to  permit  a  reasonable  opportunity  for 
the  inspection  of  the  accounts  relating  to  the  affairs  of,  and  the 
papers  and  records  of  estates  in  his  charge  by  parties  in  interest 
when  directed  by  the  Court  so  to  do. 

No  person  shall  be  prosecuted  for  any  offense  under  the 
Bankruptcy  Act  unless  the  indictment  is  filed  in  Court  within 
one  year  after  the  commission  of  the  offense. 

Meetings  of  Creditors. 

As  the  majority  of  business  men  are  interested  as  creditors 
of  a  bankrupt,  it  is  important  to  emphasize  the  rights  and  priv- 


BANKRUPTCY  207 

ileges  of  such  at  the  general  meeting  of  the  bankrupt's 
creditors. 

As  soon  as  a  case  has  been  referred  to  a  referee  it  is  his  first 
duty  to  call  for  a  meeting  of  all  the  creditors.  The  law  provides 
that  the  first  meeting  of  the  creditors  of  a  bankrupt  shall  be 
held  not  less  than  ten  nor  more  than  thirty  days  after  the  adjudi- 
cation. The  referee,  or  if  there  has  been  no  referee,  the  Judge, 
must  preside  at  all  first  meetings,  who  before  proceeding  with  the 
other  business  may  allow  or  disallow  the  claims  of  creditors 
there  presented,  and  may  publicly  examine  the  bankrupt  or  cause 
him  to  be  examined  at  the  suggestion  of  any  creditor.  The  fol- 
lowing order  of  business  is  usually  followed:  (a)  Call  for  and 
noting  of  those  present  in  person  or  by  attorney  (one  qualified 
to  practice  before  the  Circuit  or  District  Court)  ;  (b)  application 
for  amendments;  (c)  allowance  or  disallowance  of  claims;  (d) 
election  of  the  trustee  and  fixing  of  the  amount  of  his  bond;  (e) 
examination  of  the  bankrupt;  (f)  miscellaneous  motions,  orders 
and  instructions;  (g)  continuance  of  the  meeting  to  a  place,  day 
and  hour  certain. 

The  order  of  business  above  indicated  is  frequently  varied, 
the  creditors  having  the  right  at  each  meeting  to  take  such  steps 
as  may  be  necessary  for  the  promotion  of  the  best  interests  of  the 
bankrupt  estate. 

Subsequent  meetings  of  creditors  may  be  held  at  any  time 
and  place  when  all  the  creditors  who  have  secured  the  allowance 
of  their  claims  sign  a  written  consent  to  hold  the  same.  The 
Court  may  also  call  a  meeting  of  creditors  whenever  one-fourth 
or  more  in  number  of  those  who  have  proven  their  claims  shall 
file  a  written  request  therefor.  Such  request  must  be  signed  by  a 
majority  of  such  creditors  in  number  and  amount,  and  indicate 
a  designated  place,  whereupon  the  Court  shall  call  for  such 
meeting  within  thirty  days  after  the  date  of  filing  the  request. 
As  soon  as  the  affairs  of  a  bankrupt  estate  are  ready  to  be  closed 
a  final  meeting  of  creditors  shall  be  ordered.  The  referee  usually 
calls  for  creditors'  meetings  subsequent  to  the  first  upon  a  peti- 
tion or  motion  made  by  the  trustee.  Every  creditor  has  the 
absolute  right  to  ten  days'  notice  of  all  important  steps  taken 
in  a  case. 

All  matters  raised  at  a  creditors'  meeting  shall  be  decided 
by  a  majority  vote  in  number  and  amount  of  claims  of  all  credit- 
ors whose  claims  have  been  allowed  and  who  are  present.  Those 
creditors  who  have  secured  claims  or  claims  having  priority 
shall  not  be  entitled  to  a  vote  at  a  creditors'  meeting.     Such 


2o8  BANKRUPTCY 

claims  shall  not  be  counted  in  computing  either  the  number  of 
creditors  or  the  amount  of  their  claims.  If  the  amounts  of  such 
claims  exceed  the  values  of  the  securities  or  priorities,  the 
excess  may  be  counted. 

A  member  of  a  partnership  or  an  officer  of  a  corporation 
presenting  a  proof  of  debt  should  be  allowed  to  vote. 

A  claim  against  a  bankrupt  estate  must  be  proven  in  the  man- 
ner prescribed  by  the  bankruptcy  law,  and  formal  proof  of  a 
claim  consists  of  a  written  statement  under  oath,  signed  by  the 
creditor,  and  setting  forth  the  claim,  the  consideration  therefor, 
what  securities  are  held  therefor,  and  whether  any  payments 
have  been  made  thereon.  Proofs  of  debt  must  be  filed  with  the 
referee. 

If  a  claim  is  founded  on  a  written  instrument  the  same  shall 
be  filed  with  the  proof  of  claim.  All  claims  which  have  been 
duly  proved  shall  be  allowed. 

Secured  claims  and  those  which  have  priority  may  be  allowed 
to  enable  the  creditors  to  participate  in  the  first  creditors'  meet- 
ing prior  to  the  determination  of  the  value  of  their  securities 
or  priorities,  but  shall  only  be  allowed  for  such  sums  as  appear 
to  be  owing  over  and  above  the  value  of  the  securities  and  prior- 
ities. A  secured  creditor  may  surrender  his  security  or  not,  as 
he  chooses.  If  the  security  be  surrendered,  it  inures  to  the  ben- 
efit of  all  the  creditors,  and  the  claim,  if  otherwise  objectionable, 
is  allowed  at  the  full  amount.  If  a  claimant  is  fully  secured  he 
should  not  be  allowed  to  file  a  proof,  and  does  not  become  a  party 
to  the  proceeding.  The  claim  of  any  creditor  who  has  received 
any  preference  which  is  void  or  voidable  under  the  provisions 
of  the  Bankruptcy  Act,  shall  not  be  allowed,  unless  such  creditor 
surrenders  the  preference.  In  other  words,  if  a  creditor,  in  a 
transaction  occurring  not  more  that  four  months  before  the  bank- 
ruptcy, obtains  an  advantage  over  the  other  creditors  through  a 
conveyance,  transfer  or  assignment,  such  creditor  must  surrender 
his  advantage  before  his  claim  can  be  filed  and  allowed. 

The  value  of  a  security  shall  be  determined  by  converting 
the  same  into  money  according  to  the  terms  of  the  agreement 
pursuant  to  which  such  security  was  delivered  to  the  creditor.  Its 
value  may  also  be  determined  by  agreement,  arbitration,  com- 
promise or  litigation,  as  the  Court  shall  direct.  The  value  of 
the  security  when  determined  shall  be  credited  upon  the  claim, 
and  a  dividend  shall  be  paid  only  on  the  unpaid  balance. 

A  reconsideration  of  an  allowed  claim  may  be  obtained 
before  the  estate  has  been  closed,  and  such  claim  will  be  either 


BANKRUPTCY  209 

reallowed  or  rejected  in  whole  or  in  part,  according  to  the  equities 
of  the  case.  If  a  claim  upon  which  a  dividend  has  been  paid  is 
reconsidered  and  rejected  the  trustee  may  recover  the  amount  of 
the  dividend  paid.  Claims  of  one  bankrupt  estate  against  another 
may  be  proved  and  allowed  the  same  as  the  claims  of  any  other 
creditors.  Claims  cannot  be  filed  in  bankruptcy  later  than  one 
year  after  the  adjudication. 

Notice  to  creditors  must  be  given  of  every  important  step 
in  a  bankruptcy  proceeding.  Ten  days'  notice  must  be  given  of 
all  examinations  of  the  bankrupt,  all  proposed  sales  of  property, 
the  declaration  and  time  of  payment  of  dividends,  the  hearing 
upon  applications  for  the  confirmation  of  compositions  or  the 
discharge  of  bankrupts,  the  filing  of  the  final  accounts  of  the 
trustee,  and  the  time  and  place  when  and  where  they  will  be 
passed  upon. 

Who  May  File  and  Dismiss  Petitions. 

The  fifty-ninth  section  of  the  Federal  Bankruptcy  law 
regulates  who  may  file  and  dismiss  petitions.  Those  who  may 
file  voluntary  petitions  have  been  heretofore  discussed.  With 
reference  to  involuntary  petitions,  the  law  provides  that  three 
or  more  creditors  who  have  provable  claims  against  any  person 
which  amount  in  the  aggregate  to  five  hundred  dollars  or  more 
in  excess  of  the  value  of  securities  held  by  them,  may  file  an 
involuntary  petition  to  have  such  person  adjudged  a  bankrupt. 
Furthermore,  if  all  of  the  creditors  of  any  person  are  less  than 
twelve  in  number,  then  any  one  of  such  creditors  whose  claim 
amounts  to  five  hundred  dollars  may  file  a  petition  to  have  him 
adjudged  a  bankrupt. 

Involuntary  petitions  must  be  filed  in  duplicate,  and  if  it  is 
averred  that  the  creditors  of  the  bankrupt  are  less  than  twelve 
in  number  and  less  than  three  creditors  have  joined  in  the  petition, 
an  answer  may  be  filed  by  the  alleged  bankrupt,  setting  out,  under 
oath,  the  names  and  addresses  of  a  larger  number  of  creditors. 

In  computing  the  number  of  creditors  of  a  bankrupt  for  the 
purpose  of  determining  how  many  creditors  must  join  in  the 
petition,  any  creditor  employed  by  the  bankrupt  at  the  time  of 
filing  the  petition,  or  related  to  him  within  the  third  degree, 
who  has  not  joined  in  the  petition,  shall  not  be  counted.  A 
petitioning  creditor  cannot  withdraw  and  thus  reduce  the  number 
to  less  than  three.  A  proceeding  once  begun  must  result  in  an 
adjudication  or  a  dismissal. 

14 


2IO  BANKRUPTCY 

Preferred  Creditors. 

A  preference  in  relation  to  bankruptcy  has  been  defined  as 
a  "conventional  fraud,"  the  debtor  merely  preferring  to  pay  one 
creditor  more  than,  or  to  the  exclusion  of  others.  If  a  bankrupt 
gives  a  preference  and  the  person  receiving  it  or  to  be  benefited 
thereby,  shall  have  had  reasonable  cause  to  believe  that  a 
preference  was  intended,  it  shall  be  voidable  by  the  trustee,  who 
may  recover  the  property  or  its  value  from  such  person.  For 
the  purpose  of  such  recovery,  any  Court  of  bankruptcy,  and  any 
State  Court  which  would  have  had  jurisdiction  if  bankruptcy  had 
not  intervened,  shall  have  concurrent  jurisdiction. 

The  act  provides  that  a  preference  is  created  if  any  person, 
being  insolvent,  has  within  four  months  before  the  filing  of  a 
petition  in  bankruptcy,  or  after  the  filing  of  the  petition  and 
before  the  adjudication,  procured  or  suffered  a  judgment  to  be 
entered  against  him  in  favor  of  any  person,  or  who  has  made 
a  transfer  of  any  of  his  property,  the  effect  of  the  enforcement 
of  such  judgment  or  transfer  being  to  enable  any  one  of  his 
creditors  to  obtain  a  greater  percentage  of  his  debt  than  any 
other  of  such  creditors  of  the  same  class.  It  is  further  provided 
by  amendment  of  1903,  that  where  the  preference  consists  in  a 
transfer,  such  period  of  four  months  shall  not  expire  until  four 
months  after  the  date  of  recording  or  registering  of  the  transfer, 
if  by  law  such  recording  or  registering  is  required. 

The  word  transfer  includes  every  mode  of  disposing  of  or 
parting  with  property,  including  the  payment  of  money.  Where 
the  transfer  does  not  diminish  the  general  fund  on  hand  for  the 
benefit  of  all  creditors,  as  where  it  consists  of  the  giving  of  a 
fair  security  for  a  present  loan,  or  the  substitution  of  securities 
pledged  to  an  old  loan,  no  preference  results.  On  the  other  hand, 
any  transfer  within  the  four  months  period  named  in  the  act  by 
way  of  payment  on  or  security  of  an  antecedent  debt,  is  a 
preference.  A  transfer  of  firm  property  in  payment  of  an 
individual  partner's  debt  is  a  preference,  but  the  firm  must  be 
adjudged  a  bankrupt  before  a  suit  can  be  brought  to  avoid  it. 

Only  a  creditor  can  receive  a  preference.  A  transfer  may 
be  made  to  a  third  person  and  still  be  a  preference  if  the 
creditor  is  benefited  thereby.  Where  all  the  elements  of  a 
voidable  preference  exists,  the  trustee  may  recover  the 
property,  but  if  he  refuses  to  sue,  it  has  been  held  that  a 
creditor  may  be  permitted  to  do  so  for  the  benefit  of  all  the 
other  creditors. 


BANKRUPTCY  211 

If  a  creditor  has  been  given  a  preference  and  subsequently 
gives  the  debtor  credit  without  security  of  any  kind  for 
property  which  becomes  a  part  of  the  debtor's  estate,  the 
amount  of  such  new  credit  remaining  unpaid  at  the  time  of 
the  adjudication  in  bankruptcy  may  be  set  off  against  the 
amount  which  would  otherwise  be  recoverable  for  him. 

Frequently  in  contemplation  of  the  filing  of  a  petition  in 
bankruptcy  by  or  against  him,  a  bankrupt  will  pay  money  or 
transfer  property  to  his  counsel.  The  law  provides  that  if  this 
be  done  the  transaction  may  be  re-examined  by  the  Court  on 
petition  of  the  trustee  or  any  creditor,  and  shall  only  be  held 
valid  to  the  extent  of  a  reasonable  amount  to  be  determined  by 
the  Court,  and  the  excess  may  be  recovered  by  the  trustee  for 
the  benefit  of  the  estate. 

Debts  Which  May  be  Proved. 

It  is  important  in  order  to  have  a  practical  knowledge  of 
bankruptcy  proceedings  to  understand  clearly  what  constitutes  a 
provable  debt.  If  provable,  a  debt  is  the  basis  of  its  owner's  right 
to  a  share  in  the  bankrupt's  estate;  if  probable,  with  certain 
exceptions  stated  in  the  statute,  it  is  barred  by  the  discharge.  In 
the  language  of  the  statute : 

"Debts  of  the  bankrupt  may  be  proved  and  allowed  against 
his  estate  which  are  (i)  a  fixed  liability,  as  evidenced  by  a 
judgment  or  an  instrument  in  writing,  absolutely  owing  at  the 
time  of  the  filing  of  the  petition  against  him,  whether  then  payable 
or  not,  with  any  interest  thereon  which  would  have  been  recover- 
able at  that  date  or  with  a  rebate  of  interest  upon  such  as  were 
not  then  payable  and  did  not  bear  interest;  (2)  due  as  costs 
against  an  involuntary  bankrupt  who  was  at  the  time  of  the 
filing  of  the  petition  against  him  plaintiff  in  a  cause  of  action 
which  would  pass  to  the  trustee  and  which  the  trustee  declines  to 
prosecute  after  notice;  (3)  founded  upon  a  claim  for  taxable 
costs  incurred  in  good  faith  by  a  creditor  before  the  filing  of  the 
petition  in  an  action  to  recover  a  provable  debt;  (4)  founded 
upon  an  open  account,  or  upon  a  contract  expressed  or  implied; 
and  (5)  founded  upon  probable  debts  reduced  to  judgments  after 
the  filing  of  the  petition  and  before  the  consideration  of  the  bank- 
rupt's application  for  a  discharge,  less  costs  incurred  and  interests 
accrued  after  the  filing  of  the  petition  and  up  to  the  time  of  the 
entry  of  such  judgments. 

"Unliquidated  claims  against  the  bankrupt  may,  pursuant  to 


212  BANKRUPTCY 

application  to  the  Court,  be  liquidated  in  such  manner  as  it  shall 
direct,  and  may  thereafter  be  proved  and  allowed  against  his 
estate." 

In  connection  with  the  above  quoted  section  the  distinction 
must  be  noted  between  a  debt  which  may  be  proved  and  a  debt 
which  may  be  allowed.  Speaking  generally,  any  claim  on  which 
an  action  in  law  or  in  equity  might  have  been  maintained  may  be 
proved,  but  whether  or  not  a  debt  so  proved  will  be  allowed  is 
quite  another  question.  A  provable  debt  is  merely  one  which 
comes  within  a  certain  class  of  debts  which  may  be  presented  and 
receive  consideration.  Its  allowance  depends  upon  the  merits  of 
the  claim  and  the  evidence  in  support  of  it. 

Any  liability  which  arises  out  of  a  contract  is  provable.  Debts 
created  by  the  fraud  or  embezzlement  of  the  bankrupt  are 
provable,  but  are  not  annulled  by  the  bankrupt's  discharge.  An 
assignee  of  a  creditor  has  a  provable  claim  if  his  assignor  had, 
even  if  the  assignment  is  subsequent  in  date  to  the  bankruptcy.  A 
married  woman  may,  in  those  States  where  their  common  law 
disabilities  have  been  removed  by  statute,  prove  a  debt  against 
her  husband's  estate,  although  her  claim  is  usually  viewed  with 
suspicion.  To  be  provable  a  debt  must  be  a  fixed  liability  absolutely 
owing  at  the  time  the  petition  in  bankruptcy  is  filed,  regardless  of 
the  time  of  payment.  For  example,  money  owing  under  a 
contract  for  yearly  employment  may  constitute  a  provable  debt. 
A  debt  stipulated  in  a  judgment  note  is  not  "absolutely  owing," 
and  is,  therefore,  not  provable.  Such  debts  as  may  be  proved 
which  are  founded  on  a  contract,  express  or  implied,  must  be 
based  upon  a  legal  consideration,  must  not  be  against  public  policy, 
and,  if  a  corporation,  must  not  be  ultra  vires,  i.  e.,  the  contract 
must  be  such  as  it  has  charter  power  to  enter  into. 

If  a  liability  arises  not  out  of  a  contract,  but  in  tort,  i.  e.,  the 
wrongdoing  of  another,  such  as  negligence,  personal  assault  and 
slander,  etc.,  such  liability  must  be  liquidated  or  reduced  to  a 
definite  amount  before  it  can  be  proved  as  a  claim  against  a 
bankrupt's  estate. 

Although  it  is  still  a  controverted  question,  the  weight  of 
authority  holds  that  a  judgment  for  a  fine  cannot  constitute 
a  provable  debt  in  bankruptcy.  The  criminal  does  not  owe  a 
fine,  which  is  not  a  debt,  but  a  punishment.  Alimony  in  divorce 
cases  is  not  a  provable  debt.  It  is  subject  to  change  by  the  order 
of  the  Court,  and  hence  is  not  a  fixed  liability.  A  debt  outlawed 
by  the  Statute  of  Limitation  cannot  be  proved,  since  the  debt 
could  not  be  asserted  before  bankruptcy,  and  hence  the  law 


BANKRUPTCY  213 

prevents  its  proof  against  the  other  creditors,  which  if  allowed 
would  reduce  their  pro  rata  share. 

Debts  Which  Have  Priority. 

A  certain  class  of  debts  is  given  priority  in  bankruptcy. 
The  law  makes  it  the  duty  of  the  trustees  to  pay  all  taxes  legally 
due  and  owing  by  the  bankrupt  to  the  United  States,  State, 
county,  district  or  municipality  in  advance  of  the  payment  of 
dividends  to  creditors,  and  upon  filing  receipts  from  the  proper 
public  officers  for  such  payment,  he  shall  be  credited  with  the 
amount  thereof. 

Debts  having  priority  shall  be  paid  in  full  out  of  the  bank- 
rupt's estate  in  the  following  order :  ( i )  the  necessary  costs  of 
preserving  the  estate  subsequent  to  filing  the  petition  in  bank- 
ruptcy; (2)  the  filing  fees  paid  by  creditors  in  involuntary  cases, 
and  where  property  of  the  bankrupt,  transferred  or  concealed  by 
him  either  before  or  after  the  filing  of  the  petition,  shall  have 
been  recovered  for  the  benefit  of  the  estate  of  the  bankrupt  by 
the  efforts  and  at  the  expense  of  one  or  more  creditors,  the 
reasonable  expenses  of  such  recovery;  (3)  the  cost  of  adminis- 
tration, including  the  fees  and  mileage  payable  to  witnesses,  and 
one  reasonable  attorney's  fee  for  services  rendered  to  the 
petitioning  creditors  in  involuntary  cases,  and  to  the  bankrupt  in 
voluntary  cases;  (4)  wages  due  to  workmen,  clerks  or  servants 
which  have  been  earned  within  three  months  before  the  date  of 
the  commencement  of  proceedings,  not  to  exceed  three  hundred 
dollars  to  each  claimant;  and  (5)  debts  owing  to  any  person  who 
by  the  laws  of  the  States  or  of  the  United  States  is  entitled  to 
priority. 

After  taxes  to  the  government  have  been  paid  other  debts 
must  be  settled  in  the  order  above  set  forth.  And  if  there  is  not 
sufficient  funds  to  pay  all  priority  debts,  the  last  class  in  order 
abates  first. 


INSURANCE. 

History  and  Development — Insurable  Interest — Life  Insurance — 
The  Application — The  Policy — Accident  Insurance — Fire  In- 
surance— The  Company's  Liability — Marine  Insurance — 
Barratry — General  Average — Particular  Average. 

EXPOSURE  to  serious  casualties  or  accident,  such  as 
premature  death  or  disability,  fires  and  shipwrecks, 
constantly  exists,  and  as  it  is  impossible  to  prevent  the 
happening  of  such  events,  it  is  of  the  greatest  consequence  to 
guard  against  the  loss  which  their  occurrence  causes.  This  may 
be  provided  for  by  means  of  a  general  fund  which  is  obtained  by 
the  imposition  of  a  small  contribution  or  premium  upon  all  who 
are  exposed  to  the  common  hazard,  from  which  the  few  who 
suffer  may  be  indemnified. 

This  system  is  what  is  known  as  insurance,  its  principal 
branches  being  life,  accident,  fire  and  marine,  and  the  development 
of  these  branches  of  insurance  has,  among  civilized  people  of 
modern  times,  assumed  a  vast  and  increasing  importance.  The 
four  principal  classes  of  insurance  we  will  consider  separately 
in  the  order  named.  There  are  several  other  branches  of  insur- 
ance, such  as  indemnity  insurance  against  defaults  or  breaches  of 
trust  on  the  part  of  officers,  trustees  or  employees,  plate-glass 
insurance,  insurance  against  boiler  explosions,  credit  insurance, 
etc.,  which  cannot  be  discussed  in  detail  in  a  course  of  this  kind, 
the  general  principles  of  which  differ  but  slightly  from  those  we 
will  consider. 

First  Form  of  Insurance. 

The  first  form  of  insurance  developed  was  that  of  marine 
insurance,  which  has  existed  since  the  time  of  the  early  Roman 
emperors,  the  name  of  the  insurance  contract,  called  a  "policy," 
being  of  Italian  derivation.  However,  the  rules  or  trade  customs 
under  which  the  business  of  insurance  has  grown  up  are  based 
upon  the  "Usages  of  Lloyd's,"  which  was  originally  a  coffee  house 
in  London,  where  seafaring  men  and  those  engaged  in  maritime 
business  congregated.  In  1779  t^^  Society  of  Lloyd's  adopted  a 
form  of  policy  known  as  "Lloyd's  Policy,"  which  is  the  basis  of 
the  policies  now  in  use  in  the  United  States. 

(a  14) 


INSURANCE  215 

Fire  insurance  as  it  is  known  to-day  was  practically  unknown 
until  after  the  great  London  fire  of  1666. 

The  Equitable  Assurance  Society  of  London,  organized  in 
1762,  was  the  pioneer  of  the  modern  system  of  life  insurance. 
The  business  of  life  insurance  did  not  assume  any  great 
importance  in  the  United  States  until  after  the  Civil  War,  since 
when  it  has  grown  with  unparalleled  rapidity. 

Variotis  Elinds  of  Companies. 

The  business  of  insurance  is  transacted  principally  by 
corporations  organized  under  general  laws  instead  of  special 
charters,  which  are  divided  into  stock,  mutual  and  mixed  com- 
panies. A  stock  company  has  for  its  basis  a  capital  stock,  owned 
by  stockholders  who  are  quite  distinct  from  the  insured.  The 
premium  rates  are  lower  than  those  of  mixed  or  mutual 
companies,  the  profits  over  and  above  required  accumulations  and 
the  liabilities  of  the  company  being  divided  in  the  shape  of 
dividends  among  the  stockholders. 

Mutual  companies  have  no  stockholders,  the  insured  them- 
selves being  members  of  the  company,  entitled  to  the  management 
of  its  aflfairs,  and  to  the  receipt  of  any  share  of  surplus  premiums 
over  and  above  the  amount  required  for  the  payment  of  losses  and 
expenses.  In  mixed  companies,  which  partake  of  the  nature  of 
both  stock  and  mutual  companies,  a  certain  proportion  of  the 
profits  is  paid  to  the  stockholders  and  the  remainder  distributed 
among  the  insured. 

In  mutual  companies  premiums  are  frequently  paid  in  whole 
or  in  part  by  notes  of  the  insured,  which  the  company  holds,  and 
from  time  to  time  assesses  to  pay  losses  and  expenses. 

Most  States  of  the  Union  have  established  by  law  an  insur- 
ance department  for  the  better  protection  of  the  insured.  Foreign 
insurance  companies  and  domestic  life  insurance  companies  arc 
required  prior  to  commencing  business  to  deposit  money  or 
equivalent  securities,  which  are  held  as  collateral  by  the 
department  for  the  security  of  the  insured.  Stated  reports  must 
also  be  furnished  the  department  indicating  in  detail  the  business 
affairs  of  the  company  making  the  report,  and  a  certain  reserve 
fund  must  be  maintained  to  meet  future  liabilities. 

In  life  insurance  the  premiums  charged  are  based  upon 
calculations  made  from  mortality  tables.  These  tables  arc 
tabulated  exhibits  of  the  number  of  survivors  and  the  number 
of  those  dying  each  subsequent  year  among  a  given  number  of 
persons   taken  at  various  given  ages.     The  mean  or  average 


2i6  INSURANCE 

duration  of  life  of  an  individual  after  any  specified  age,  according 
to  a  given  table  of  mortality,  is  called  the  expectation  of  life. 

The  Contract  of  Insurance. 

The  contract  of  insurance  is  founded  on  the  principle  of 
indemnity,  with  certain  modifications  hereinafter  noted.  It  is 
detrimental  to  the  public,  as  offering  an  inducement  to  the  com- 
mission of  crime,  to  permit  the  insured  to  gamble  upon  the  event 
of  death  or  the  destruction  of  property.  Consequently,  in  all 
branches  of  insurance,  a  binding  contract  cannot  be  made  unless 
the  insured  has  a  pecuniary  interest  in  the  subject  of  insurance, 
i.  e.,  the  insured  must  be  so  situated  with  reference  to  the  life  or 
property  that  his  gain  of  the  policy  money  will  be  offset  by  his  loss 
of  the  subject  matter. 

The  policy  in  life  insurance  may  be  effected  upon  one's  own 
life,  upon  the  life  of  a  near  family  relative  or  upon  the  life  of  a 
more  distant  relative  or  stranger  to  the  blood.  In  the  first  case  the 
temptation  to  suicide  is  not  deemed  fatal;  in  the  second  case, 
normal  family  affection  is  sufficient;  but  in  the  third  class  a 
pecuniary  interest  is  always  required.  A  distinction  should  there- 
fore be  made  between  insurance  on  one's  own  life  or  on  the  life 
of  a  near  relative  where  no  interest  is  required,  and  insurance 
upon  the  lives  of  others  or  upon  property,  where  a  real  interest 
is  always  necessary. 

The  Courts  have  held  that  life  insurance  is  not  a  contract  of 
indemnity,  but  that  property  insurance  is. 

A  policy  of  insurance  is  a  property  right  and  is  consequently 
assignable.  In  view  of  the  fact  that  death  or  the  destruction  of 
property  must  occur  in  order  to  realize  its  value,  the  right  to 
assign  a  policy  of  insurance  is  restricted  by  the  doctrine  of 
insurable  interest. 

Insurable  Interest. 

As  insurance  is  based  upon  the  existence  of  an  insurable 
interest  on  the  part  of  the  insured,  it  is  necessary  to  define  clearly 
-what  constitutes  an  insurable  interest. 

As  applied  to  life  insurance,  one  has  an  insurable  interest  in 
the  life  of  another  when  there  is  a  reasonable  expectation  of 
advantage  or  benefit  from  the  continuance  of  the  life  of  such  other 
party.  Every  person  has  an  insurable  interest  in  his  own  life  and 
health,  or  of  anyone  he  depends  upon,  wholly  or  in  part,  for 
education  and  support;  or  of  any  person  under  legal  obligation 


INSURANCE  217 

to  him  for  the  payment  of  money,  or  of  any  person  upon  whose 
life  any  estate  or  interest  which  is  vested  in  him  depends.  Thus, 
for  example,  a  creditor  has  an  insurable  interest  in  the  life  of  his 
debtor,  a  partner  in  the  life  of  a  co-partner,  a  woman  in  the  life 
of  her  fiance,  a  wife  in  the  life  of  her  husband,  and  it  is  important 
to  note  in  this  latter  connection  that  the  validity  of  the  policy  will 
survive  a  divorce.  Where  one  takes  out  a  policy  of  insurance  on 
his  own  life  and  subsequently  assigns  it  to  one  who  has  no  insur- 
able interest,  but  who  continues  to  pay  the  premiums,  the  assign- 
ment is  a  wagering  contract  and  hence  void  as  being  contrary  to 
the  policy  of  the  law. 

It  being  impossible  to  estimate  exactly  the  interest  which  one 
has  in  his  own  life,  it  may  be  valued  at  any  amount  which  the 
parties  agree  upon,  which  is  the  case  of  all  insurance  interests 
founded  upon  relationship.  But  if  a  creditor,  however,  takes  out 
insurance  upon  the  life  of  his  debtor  greatly  in  excess  of  the 
"amount  due,  the  transaction  would  be  void  as  being,  in  reality,  a 
wager. 

The  element  of  dependency  must  be  coupled  with  relationship 
to  furnish  the  basis  for  an  insurable  interest.  To  illustrate,  an 
adult  son  has  no  insurable  interest  in  the  life  of  his  father  by 
virtue  of  the  relationship,  or  a  nephew  in  the  life  of  an  uncle, 
or  (very  fortunately)  a  son-in-law  in  the  life  of  a  mother-in-law. 

In  regard  to  fire  insurance,  the  rule  of  insurable  interest  has 
been  judicially  stated  as  follows : 

"Whenever  there  is  a  real  interest  to  protect,  and  a  person 
is  so  situated  with  respect  to  the  subject  of  insurance  that  its 
destruction  would  or  might  reasonably  be  expected  to  impair  the 
value  of  the  interest,  an  insurable  interest  would  exist,  whether 
the  interest  was  an  ownership  in,  or  a  right  to  the  possession  of 
the  property,  or  simply  an  advantage  of  a  pecuniary  character 
having  a  legal  basis,  but  dependent  upon  the  continued  existence 
of  the  subject.  It  is  well  settled  that  a  mere  hope  or  expectation, 
which  may  be  frustrated  by  the  happening  of  some  event,  is  not 
an  insurable  interest." 

The  same  person  may  have  different  insurable  interests  in 
the  same  property,  and  different  persons  may  have  separate 
insurable  interests  in  the  same  property.  Where  the  insured  is 
jointly  interested  with  others,  as,  for  instance,  co-partners  or 
trustees,  or  where  he  is  intrusted  with  goods  of  other  people,  as  in 
the  case  of  a  common  carrier  or  warehouseman,  he  may  either 
insure  his  own  interest  or  his    own  liability  in  regard  to  the 


2i8  INSURANCE 

property,  or  he  may  insure  the  property  to  its  full  value  for  the 
benefit  of  all  concerned. 

In  marine  insurance  the  same  general  principles  respecting 
insurable  interest  are  applicable  as  in  fire  insurance.  The  owner 
of  a  ship  has  an  insurable  interest  in  it  at  all  times,  even  though 
it  has  been  chartered  by  one  who  covenants  to  pay  him  its  value 
in  case  of  loss,  and  has  also  an  insurable  interest  in  expected 
freight  which  would  have  been  earned  were  it  not  for  the 
intervention  of  the  peril  insured  against.  One  who  loans  money 
on  bottomry  may  likewise  insure  his  interest  in  the  ship  to  the 
amount  of  his  loan. 

The  insurable  interest  in  fire  and  marine  insurance  must 
not  only  exist  when  the  risk  is  assumed,  but  also  at  the  time  the 
loss  occurs.  In  life  insurance,  however,  it  may  cease  any  time 
after  the  contract  is  made.  Thus  a  creditor  who  has  taken  out  a 
policy  on  the  life  of  his  debtor,  may  at  his  death  recover  the  full 
amount  of  the  insurance,  even  though  the  debt  has  been  paid 
previously.  Life  insurance  for  this  reason  is  not  a  contract  of 
strict  indemnity,  but  is  so  governed  by  that  doctrine  as  to  prevent 
it  from  being  a  wagering  contract  at  its  inception.  The  rules  of 
recovery  in  cases  of  fire  and  marine  insurance  differ  in  the  event 
of  partial  loss  of  the  property  insured.  In  fire  insurance  the 
insured  is  entitled  to  recover  his  damages  up  to  the  amount  of  the 
policy.  In  marine  insurance,  where  the  value  of  the  policy  is  not 
specifically  fixed  (which  is  seldom  done),  the  insured  can  recover 
only  such  proportion  of  the  amount  insured  as  the  loss  bears  to 
the  value  of  the  entire  interest  of  the  insured  in  the  ship.  For 
example,  if  a  property  is  insured  for  $10,000,  which  is  worth 
$20,000,  and  a  loss  of  $5,000  by  fire  occurs,  the  insured  may 
recover  his  entire  loss  in  full,  but  if  a  man  has  a  marine  policy 
for  $10,000  on  a  cargo  worth  $20,000,  and  a  loss  of  $5,000  occurs, 
he  will  recover  only  $2,500. 

Insurance  on  property  is  in  the  nature  of  a  personal  contract 
and  hence  does  not  pass  to  the  new  owner  by  virtue  of  a  transfer 
of  the  property.  It  is  therefore  necessary  for  one  acquiring  title 
to  a  property  to  take  out  new  policies  or  have  the  proper  indorse- 
ments consenting  to  the  transfer  made  by  the  insurance  company 
on  the  old  policy. 

If  a  person  takes  out  a  policy  of  insurance  on  his  life  and 
names  another  as  beneficiary,  the  latter  acquires  a  vested  interest 
which  cannot  be  interfered  with  by  assignment  or  will  without  his 
consent,  or  some  provision  in  the  policy.  If  a  husband  names  his 
wife   as  beneficiary   and   pays   all  the  premiums   with  money 


INSURANCE  219 

embezzled  from  his  firm,  the  proceeds  of  the  policy  would  belong 
to  the  firm,  but  if  he  paid  the  first  premium  with  his  own  money 
and  subsequent  premiums  with  money  embezzled  from  another, 
the  value  of  the  policy  would  be  payable  to  his  wife,  but  the 
defrauded  party  would  have  a  lien  upon  the  proceeds  of  the 
policy  for  the  amount  of  money  embezzled  from  him. 

When  the  risk  attaches,  the  insured  under  the  usual  form  of 
policy  becomes  debtor  to  the  insurer  (the  company)  for  the  first 
premium.  The  relation  of  debtor  does  not  exist,  however,  in 
regard  to  future  premiums,  the  payment  of  which  is  merely  made 
a  condition,  the  performance  of  which  is  necessary  in  order  to 
continue  the  contract.  As  a  general  rule,  an  interest  in  an 
insurance  policy  is  not  subject  to  attachment  or  execution,  being 
what  is  known  in  law  as  a  "chose  in  action." 

With  these  brief  observations  upon  insurance  in  general,  it  is 
hoped  the  reader  will  be  better  able  to  intelligently  undertake  the 
study  of  its  separate  branches,  the  first  study  of  which  will  be 
life  insurance. 

It  was  pointed  out  in  the  preceding  articles  that  public  policy 
required  every  contract  of  life  insurance  to  be  supported  by  an 
insurable  interest,  which  is  such  as  would  justify  the  reasonable 
expectation  of  advantage  or  benefit  from  the  continuance  of  the 
life  of  the  insured.  Otherwise  life  insurance  would  be  a  mere 
wager  on  human  life,  which  would  instigate  the  grossest  crimes. 
It  has  been  held  in  Pennsylvania  that  where  an  insurable  interest 
exists  at  the  time  life  insurance  is  effected,  the  fact  that  the  inter- 
est ceases  to  exist  subsequently  will  not  destroy  any  rights  under 
the  policy. 

A  husband  has  an  insurable  interest  in  the  life  of  his  wife, 
and  vice  versa;  a  parent  in  the  life  of  a  child  and  vice  versa,  and 
a  creditor  in  the  life  of  his  debtor.  But  a  brother  or  sister  has 
not  an  insurable  interest  in  the  life  of  the  other,  nor  a  nephew 
in  the  life  of  his  aunt  or  uncle,  but  circumstances  may  possibly 
exist  which  would  take  these  cases  out  of  the  rule. 

The  doctrine  of  insurable  interest  is  embodied  in  the  statute 
law  of  Pennsylvania,  the  act  of  June  5,  1883,  providing  that  when 
the  payments  on  a  policy  of  life  insurance  are  made  by  any  per- 
son other  than  the  insured,  the  contract  to  be  valid  must  be  sup- 
ported by  an  insurable  interest;  and  shall  be  invalid  when  the 
beneficiary  or  assignee  thereof  is  solely  and  only  interested  in 
the  death  of  the  insured.  A  man  may,  however,  insure  his  own 
life  and  have  the  policy  payable  to  another,  provided  he  pays  the 
premiums  himself.    If  a  man  insures  his  life  in  the  name  of  B, 


220  INSURANCE 

reputed  to  be  his  wife,  and  after  his  death  it  appears  that  she 
is  not  his  lawful  wife,  her  right  to  the  proceeds  cannot  be  con- 
tested. If  a  policy  is  taken  out  by  one  who  has  an  insurable  inter- 
est, for  the  purpose  of  transferring  it  to  one  who  has  not  such  an 
interest,  the  assignee  without  interest  has  no  right  to  the  pro- 
ceeds. An  aunt  who  stands  in  loco  parentis  to  a  minor  child,  a 
nephew,  may  take  out  an  industrial  policy  to  the  amount  of  $190 
on  his  life. 

The  Application. 

The  requisites  which  must  be  specified  to  make  a  valid  policy 
are  the  names  or  description  of  the  parties,  the  rate  of  premium, 
the  life  insured,  the  risks  insured  against,  and  the  term  or 
duration  of  the  insurance. 

The  application  constitutes  an  essential  part  of  the  contract 
of  the  insurance,  and  the  insured  is  bound  in  making  his  appli- 
cation to  disclose  all  facts  that  may  be  material  to  the  risk. 
The  contract  of  insurance  is  one  requiring  good  faith  between 
the  parties,  and  fraudulent  dealing  at  any  stage,  either  before  or 
after  the  issuance  of  the  policy,  is  fatal  to  the  rights  of  the  party 
responsible.  The  party  effecting  the  insurance  must  make  truthful 
answers  to  all  questions  in  the  application,  and  is  in  duty  bound  to 
make  a  frank  and  honest  disclosure  of  those  circumstances  which 
are  likely  to  affect  the  insurer's  estimate  of  the  risk.  If  a  person 
answers  in  the  negative  the  question  as  to  whether  or  not  he  was 
insured  in  any  other  company,  or  had  made  application  for  insur- 
ance and  had  been  refused,  and  such  answer  is  proved  to  be  false, 
the  policy  will  be  held  to  be  void. 

Formerly  it  was  held  that  any  false  warranty  would  invali- 
date a  policy,  but  subsequent  legislation  in  most  States  has  reme- 
died this  defect  by  providing  that  whenever  the  application  for  a 
policy  of  life  insurance  contains  a  clause  of  warranty  of  the  truth 
of  the  answers  therein  contained,  no  misrepresentation  or  untrue 
statement  in  such  application  made  in  good  faith  by  the  applicant, 
shall  effect  a  forfeiture  or  be  a  ground  of  defense  in  any  suit 
brought  upon  any  policy  of  insurance  issued  upon  the  faith  of 
such  application,  unless  such  misrepresentation,  or  untrue  state- 
ment relate  to  some  matter  material  to  the  risk.  It  is  further 
provided  that  whenever  a  wrong  age  has  been  given  in  good  faith 
in  an  application  for  a  policy  of  life  insurance,  the  company  shall 
not  be  required  to  pay  the  face  value  of  the  policy,  but  must  pay 
such  sum  as  the  premium  paid  would  have  purchased  at  the  appli- 
cant's real  age  at  the  time  of  effecting  the  insurance.     It  will, 


INSURANCE  221 

therefore,  be  seen  that  only  such  untrue  statements  as  are  material 
to  the  risk  will  invalidate  a  contract  of  life  insurance. 

In  connection  with  the  application  for  life  insurance,  the  dis- 
tinction between  a  warranty  and  representation  must  be  clearly 
understood.  A  warranty  is  a  statement  of  fact  or  promise  of 
performance,  relating  to  the  subject  of  insurance  or  to  the  risk, 
which  must  be  literally  true  or  strictly  complied  with,  otherwise 
the  contract  may  be  avoided.  A  representation  is  in  the  nature 
of  a  collateral  inducement  to  the  contract,  and  it  is  an  agreement 
that  the  fact  stated  is  true,  but  only  such  a  statement  as  will  con- 
stitute a  misrepresentation,  if  it  be  untrue.  A  material  mis- 
representation of  fact,  whether  intentional  or  unintentional,  will 
void  the  contract. 

Whether  a  statement  shall  be  taken  as  a  warranty  is  a  ques- 
tion of  interpretation  to  be  ascertained  as  in  other  contracts, 
but  the  rule  seems  to  be  that  such  representations  are  warranties 
when  it  is  apparent  that  they  had  in  themselves  or  in  view  of  the 
parties  a  tendency  to  induce  the  insurer  to  enter  into  the  contract 
on  more  favorable  terms. 

The  answer  in  the  application  that  the  "health  is  good" 
means  that  the  one  who  seeks  insurance  is  free  from  any  ailment 
that  seriously  aflFects  his  general  soundness  and  healthfulness.  A 
representation  that  the  applicant  is  a  single  man  will  avoid  a 
policy  if  the  applicant  be  married.  It  is  also  material  to  the  risk 
assumed  that  the  occupation  of  the  applicant  be  correctly  stated. 
If  an  applicant  is  addicted  to  habitual  excessive  indulgence  in 
liquor  and  states  in  the  application  that  he  is  temperate  in  the 
use  of  intoxicating  liquors,  the  policy  may  be  avoided.  If,  how- 
ever, the  insured  was  a  temperate  man  at  the  time  the  policy  of 
insurance  was  granted,  the  fact  that  he  subsequently  contracted 
the  habit  of  excessive  drinking  and  died  of  delirium  tremens  will 
not  prevent  the  beneficiary  from  recovering  the  value  of  the  policy. 

The  contract  of  insurance  is  made  in  the  same  manner  as  any 
other  contract,  i.  e.,  by  offer  and  acceptance.  The  application  con- 
stitutes the  offer,  the  issuing  of  the  policy,  the  acceptance,  and 
the  contract  is  completed  by  delivery  of  the  policy. 

The  parties  to  a  contract  of  life  insurance  are  ( i)  the  insurer, 
who  may  be  any  person  competent  to  assume  the  risk,  or  any 
corporation  authorized  by  law  to  engage  in  such  business,  and 
who  becomes  obligated  to  pay  a  certain  sum  to  another  in  the 
event  of  the  death  of  a  certain  named  person ;  (2)  the  insured, 
which  term  applies  to  two  different  f)ersons,  (a)  the  insured 
may  be  the  person  upon  whose  death  the  amount  of  insurance 


222  INSURANCE 

money  must  be  paid,  or  (b)  the  person  who  pays  the  premiums 
may  be  the  insured;  and  (3)  the  beneficiary,  who  is  the  party 
to  whom  the  insurance  money  must  be  paid  upon  the  death  of 
the  insured. 

The  Consideration  for  the  Policy. 

The  premium  to  be  paid  is  the  consideration  for  issuing  the 
poHcy.  The  premium  is  regulated  by  the  amount  of  insurance,  the 
age,  occupation,  habits  and  sex  of  the  insured.  Ordinarily  pay- 
ment of  the  premium  must  be  made  before  the  risk  attaches.  The 
payment  of  the  premium,  delivery  of  the  policy  and  subsequent 
assumption  of  the  risk  are  usually  coincident.  Premiums  may 
be  paid  in  either  cash  or  by  promissory  notes.  Where  the  insur- 
ance company  accepts  the  promissory  note  of  the  insured  for  the 
first  premium,  the  policy  containing  a  recital  of  the  payment  of 
the  premium,  but  the  note,  of  even  date  therewith,  providing 
that  non-payment  thereof  shall  void  the  policy,  the  note  modifies 
the  contract  contained  in  the  policy,  and  no  recovery  can  be  had 
upon  the  latter,  if  the  note  is  not  paid  at  maturity. 

Most  policies  stipulate  a  forfeiture  of  all  rights  under  it 
upon  default  of  payments  of  the  premiums,  but  a  policy  cannot 
be  forfeited  for  non-payment  of  premiums  where  there  is  no  pro- 
vision in  the  policy  to  this  effect.  Furthermore,  a  policy  cannot 
be  forfeited  where  the  insurer  (the  company)  has  in  its  possession 
dividends  belonging  to  the  policyholder  more  than  enough  to  pay 
the  premium.  Profits  earned  and  not  declared  as  dividends  can- 
not be  treated  as  funds  in  the  hands  of  the  insurance  company 
to  be  applied  to  the  payment  of  a  premium. 

Where  a  life  insurance  policy  provides  that  premiums  sl\all 
be  paid  quarterly,  on  certain  dates,  or  within  thirty  days  there- 
after, during  the  continuance  of  the  policy,  the  company  is  liable, 
where  the  insured  dies  within  thirty  days,  but  before  the  payment 
of  the  premium,  which  is  paid  prior  to  the  expiration  of  such 
time,  the  fact  that  the  insured  was  unable  by  reason  of  sickness 
to  pay  a  premium  when  due  will  not  prevent  a  forfeiture. 

If  the  insured  has  been  in  default  in  the  payment  of  premiums 
for  a  considerable  length  of  time,  the  default  cannot  be  excused 
by  showing  that  the  company  failed  to  give  notice  of  the  fact 
that  the  premium  was  due  in  accordance  with  its  usual  custom, 
since  in  such  case  the  default  cannot  be  attributed  to  the 
misleading  effect  of  the  company's  course  of  business. 

Forfeiture,  however,  is  odious  to  the  law  and  cannot  be 


INSURANCE  223 

enforced  if  the  company  in  any  way  waived  its  right  to  collect 
the  premiums  at  the  time  named.  It  has  consequently  been  held 
that  the  company  has  waived  prompt  payment  of  premiums  and 
hence  cannot  declare  a  forfeiture  of  the  policy  if  it  has  adopted 
a  custom  of  accepting  premiums  thirty  or  sixty  days  after  due. 
It  is  not  a  waiver  if  the  company  fails  to  observe  its  custom  by 
sending  notices  when  premiums  are  payable. 

Payment  of  a  premium  by  the  insured  to  a  person  expressly 
or  impliedly  authorized  to  receive  same  is  a  payment  to  the 
company. 

When  a  life  insurance  policy  provides  that  on  failure  to 
pay  a  premium  when  due,  and  in  the  lifetime  of  the  insured,  the 
policy  shall  be  void,  and  further  provides  that  no  person  except 
the  president  and  secretary  of  the  company,  acting  together,  shall 
have  authority  to  alter  the  contract  or  waive  a  forfeiture,  a  gen- 
eral agent  of  the  company  has  no  authority  to  receive  overdue 
premiums  after  the  death  of  the  insured,  unless  the  company  has 
expressly  or  impliedly  given  him  such  authority.  This  authority 
will  not  be  implied  from  the  fact  that  said  agent  had  been  in  the 
habit  of  receiving  and  in  fact  had  authority  to  receive  premiums 
and  deliver  renewal  receipts  after  maturity  where  the  insured 
was  at  the  time  in  good  health.  The  insured  cannot  set  up  as  an 
excuse  that  he  had  agreed  with  an  agent  of  the  company  that  the 
latter  should  credit  the  premium  on  a  debt  the  agent  owed  to  the 
insured. 

Mere  silence  will  not  give  consent  to  a  request  by  the  insured 
for  a  renewal  of  the  policy.  A  renewal  receipt  which  purports 
to  renew  an  expired  policy  is  admissible  as  evidence  of  a  contract 
for  such  renewal. 

The  life  insured  is  the  subject  matter  of  the  contract  of  life 
insurance,  and  certain  restrictions  are  usually  imposed  by  the 
insurance  company  upon  the  life  so  insured,  principal  among 
which  are  those  relating  to  travel,  occupation,  military  and  naval 
service  and  manner  of  death.  With  reference  to  restriction  upon 
occupation,  engaging  in  the  manufacture  of  gunpowder  or  dan- 
gerous chemicals,  or  becoming  a  fireman,  locomotive  engineer  or 
miner,  will  defeat  recovery  if  death  occurs  while  following  such 
occupation  stipulated  against.  As  some  occupations  are  more 
hazardous  than  others,  certain  companies  provide  in  their  policies 
that  the  insured  shall  not  change  his  occupation  without  the 
company's  knowledge  and  consent. 

It  is  a  general  condition  of  life  insurance  policies  that  the 
insured  shall  not  enter  the  military  and  naval  service  without  the 


224  INSURANCE 

consent  of  the  insurance  company.  If  this  restriction  is  violated 
the  policy  may  be  avoided.  Too  much  stress  cannot  be  laid  upon 
the  necessity  of  carefully  reading  the  policy  and  becoming  famil- 
iar with  its  terms  and  strictly  complying  therewith.  Oversight  in 
this  regard  is  frequently  fatal.  The  answers  to  the  application 
should  be  truthful,  the  premiums  promptly  paid,  care  being  taken 
to  make  payment  to  that  agent  of  the  company  within  the  scope 
of  whose  employment  it  is  to  accept  such  premiums,  and  condi- 
tions as  to  notifying  company  of  change  in  occupation,  foreign 
residence,  etc.,  complied  with. 

The  principal  restrictions  upon  the  manner  of  death  are 
that  it  must  not  occur  in  violation  of  law,  by  suicide  or  duel.  The 
policy  will  be  void  if  the  insured  meets  with  death  while  engaged 
in  the  perpetration  of  an  unlawful  act,  such  as  burglary.  If  the 
insured  has  committed  murder  for  which  he  is  hanged,  the  policy 
will  be  void.  A. policy  will  also  become  void  if  the  insured  dies 
as  a  result  of  a  criminal  operation  or  attempted  abortion. 

If  a  policy  of  life  insurance  which  is  silent  as  to  suicide  by  the 
insured  is  made  payable  to  one  who  has  an  insurable  interest  in 
the  life  of  the  insured,  suicide  by  the  insured  will  not  defeat  a 
recovery  upon  the  policy.  But  it  has  been  held  (although  some 
doubt  still  exists)  that  where  the  policy  is  payable  to  the  estate 
of  the  insured,  suicide  will  prevent  any  recovery  on  the  policy 
by  his  personal  representatives,  although  there  is  no  stipulation 
against  it. 

A  stipulation  against  suicide  does  not  avoid  the  policy 
where  nothing  is  said  as  to  sanity  or  insanity  of  the  insured  at  the 
time  of  the  suicide,  unless  the  insured  is  possessed  of  sufficient 
mental  capacity  to  form  an  intelligent  intent  to  take  his  life. 
It  has  been  held  that  if  the  insured  committed  suicide  while 
insane,  and  the  policy  was  silent  as  to  the  sanity  or  insanity  of 
the  insured,  the  company  is  liable,  even  though  the  insured 
intended  to  take  his  life  and  knew  that  death  would  be  the.  result 
of  his  act.  If  the  policy  contains  the  condition  that  the  policy 
shall  become  void  if  the  insured  takes  his  own  life,  while  sane 
or  insane,  no  recovery  can  be  had,  if  the  insured  commits  suicide 
while  insane.  A  policy  providing  for  a  forfeiture  in  case  the 
insured  shall,  by  any  unlawful  act,  take  his  own  life,  is  not  for- 
feited where  the  insured,  while  trespassing  on  a  train  of  cars, 
is  thrown  under  the  wheels  and  killed.  Where  death  may  be 
the  result  of  either  accident  or  suicide,  the  presumption  is  always 
against  suicide. 

By  the  act  of  April  15,  1868,  it  is  provided  that  all  policies 


INSURANCE  225 

of  life  insurance  or  annuities  upon  the  life  of  any  person  which 
are  taken  out  for  the  benefit  of,  or  which  have  been  assigned  to 
the  wife  or  children,  or  any  relative  dependent  upon  such  person, 
shall  be  vested  in  such  wife,  children  or  other  relative,  full  and 
clear  from  all  claims  of  the  creditors  of  such  person.  By  the 
terms  of  this  act  any  one  who  makes  provision  for  his  wife  for 
her  benefit,  vests  a  good  title  in  his  wife,  notwithstanding  the 
claims  of  the  creditors  of  the  insured.  The  question  of  good 
faith  or  fraud  upon  the  rights  of  such  creditors  cannot  be  raised. 
By  the  later  act  of  May  i,  1876,  it  is  provided  that  if  the 
premium  is  paid  by  any  person  with  intent  to  defraud  his  cred- 
itors, an  amount  only  equal  to  the  premium  so  paid,  with  interest 
thereon  shall  inure  to  their  benefit.  It  is  a  general  rule  of  law 
that  a  policy  of  insurance  must  be  construed  most  strongly 
against  the  insurer  (the  company).  Consequently  where  any 
doubt  exists  as  to  the  meaning  of  the  policy,  or  where  it  is  capable 
of  two  interpretations,  each  equally  reasonable,  that  one  must  be 
adopted  which  is  most  favorable  to  the  insured.  Where  the 
written  and  printed  portion  of  a  policy  conflict  the  latter  must 
yield  to  the  former. 

Assignment. 

The  beneficiary  may  assign  a  policy  of  life  insurance,  but 
this  should  be  done  with  the  knowledge  and  consent  of  the  insurer, 
and  must  be  made  to  one  who  has  an  insurable  interest  in  the  life 
insured,  either  as  creditor,  surety  or  relative  by  blood  or  mar- 
riage. The  insured  has  no  right  to  assign  the  policy  unless  he 
be  the  beneficiary  and  pay  the  premiums.  There  may  be  a  valid 
assignment  of  a  life  insurance  policy  by  gift  (by  mere  delivery 
thereof  to  the  donor),  without  assignment  or  indorsement  in  writ- 
ing. Delivery,  however,  is  essential  where  there  is  no  considera- 
tion, even  though  the  assignment  be  in  writing  under  seal.  To 
illustrate :  Where  the  insured  places  his  policy  in  a  sealed  envel- 
ope, addressed  to  a  person  to  whom  it  is  delivered  after  the  death 
of  the  insured,  together  with  an  assignment  in  trust  for  the 
insured's  children,  and  neither  the  trustee  nor  the  children  have 
any  knowledge  of  the  transaction,  and  the  envelope  remains  in 
the  insured's  possession,  there  is  no  valid  gift.  Where  an  assign- 
ment is  inoperative,  such  as  for  want  of  delivery,  it  may.  never- 
theless, take  effect  as  a  direction,  given  at  the  time  the  policy 
was  issued,  to  pay  the  insurance  to  the  assignee,  where  it  appears 
that  the  assignment  was  executed  before  the  policy  was  taken 

16 


226  INSURANCE 

from  the  insurer's  office,  and  that  a  copy  of  it  was  filed  with 
the  company. 

Where  the  subscribing  witness  to  an  assignment  of  a  life 
insurance  policy,  executed  by  the  insured  to  his  wife  and  children, 
attests  its  sealing  and  delivery,  and  the  wife  dies  before  the  hus- 
band, the  fact  that  the  policy  and  the  assignment  are  found  among 
his  papers  at  his  death,  would  not  be  sufficient  to  overcome  the 
presumption  that  the  assignment  was  delivered.  If  proof  is 
given  that  a  life  insurance  policy  was  taken  out,  expressed  to 
be  for  the  benefit  of  the  insured's  intended  wife,  but  which  for 
motives  of  delicacy  on  her  part,  was  made  payable  to  his  legal 
representative,  and  which  after  their  marriage  was  acknowledged 
as  the  wife's,  but  was  placed  in  a  box  containing  their  common 
papers  and  deposited  in  the  wife's  trunk,  it  would  be  held  suffi- 
cient evidence  as  against  the  husband's  relatives,  to  prove  a 
gift  to  the  wife.  If  a  man  takes  out  a  policy  on  his  own  life  for 
the  benefit  of  a  child,  this  constitutes  a  gift  of  the  policy  to  such 
child,  although  the  policy  remains  in  the  possession  of  the 
insured. 

The  payment  of  premiums  by  a  creditor  on  his  debtor's  life 
insurance,  and  the  fact  that  the  premium  receipt  book  is  in  his 
possession,  do  not  amount  to  an  assignment  of  the  policy  and 
will  not  give  the  creditor  any  interest  therein. 

The  insurance  company  has  the  right  to  choose  the  persons 
with  whom  it  will  contract,  and  a  stipulation  in  the  policy  that 
it  shall  not  be  transferred  without  the  consent  of  the  insurer 
is  merely  the  exercise  of  that  right,  and  its  validity  is  undoubted. 

Where  the  beneficiary  has  assigned  his  interest  in  a  policy 
to  a  creditor,  the  fact  that  the  assignment  was  not  approved  by 
the  company  before  the  death  of  the  insured  cannot  be  set  up 
in  defense,  the  requirement  of  approval  being  intended  solely 
for  the  benefit  of  the  company.  The  assignment  of  a  policy 
in  compliance  with  the  regulations  of  the  company,  does  not  con- 
stitute a  new  insurance,  and  questions  as  to  the  necessity  of  a  full 
disclosure  of  facts  apply  to  the  issuing  of  the  policy  and  not  to 
the  assignment,  Whete  a  woman  took  out  a  policy  on  her  life, 
payable  to  her  executors,  and  afterwards  gave  it  to  her  daughter- 
in-law  with  instructions  to  pay  the  premiums,  pay  the  insured's 
funeral  expenses,  and  if  anything  was  left  to  give  it  to  the 
granddaughter  of  the  insured,  it  was  held  that  the  failure  to  dis- 
close this  arrangement  did  not  amount  to  a  fraud  on  the  insurer. 

A  stipulation  in  a  policy  that  in  case  of  an  assignment  the 
assignee  shall  be  liable  for  the  unpaid  premium,  is  merely  a 


INSURANCE  027 

personal  contract,  and  gives  the  insurance  company  no  right  of 
action  against  the  assignee.  Where  an  assignment  is  made  for 
the  purpose  of  securing  a  creditor,  the  assignee,  although  entitled 
to  receive  the  face  value  of  the  policy  can  hold  only  such  amount 
as  is  necessary  for  his  indemnity.  The  legal  representatives  of 
the  debtor  will  be  entitled  to  the  balance. 

Cancellation. 

A  contract  of  insurance,  like  any  other,  requires  the  consent 
of  both  parties  to  cancel  or  rescind  it,  unless  by  its  own  terms 
a  right  to  do  so  is  given  to  either  party  alone,  and  if  such  right 
is  given  upon  conditions,  they  must  be  fully  complied  with  before 
the  right  can  be  exercised. 

Where  a  policy  of  life  insurance  is  unlawfully  forfeited  by 
the  insurance  company  for  non-payment  of  premiums,  the  insured 
may  recover  back  the  premiums  paid  by  him  on  the  policy  while 
it  was  in  force,  with  interest  from  the  time  of  demand.  The 
fact  that  the  risk  had  attached,  and  had  been  carried  during 
the  time  the  premiums  were  paid,  is  no  defense.  Where  a  com- 
pany, not  knowing  that  a  policy  made  payable  to  the  insured  or 
to  any  other  person  appearing  to  be  equitably  entitled  was  in 
reality  for  the  benefit  of  a  creditor,  by  whom  the  premium  was 
paid,  arbitrarily  canceled  the  policy,  and  retained  the  premiums, 
it  was  held  that  the  creditor  had  a  right  of  action  to  recover  the 
premiums  paid  by  him.  A  contract  of  insurance  cannot  be 
canceled  without  notice  to  the  insured. 

Notice  and  Proof  of  Death. 

The  terms  of  the  policy  determine  when  it  falls  due,  and  the 
amount  of  the  insurance  is  usually  payable  within  a  certain  time 
mentioned  in  the  policy  after  the  death  of  the  insured.  This 
time  is  generally  sixty  or  ninety  days  after  notice  and  proof  of 
death.  The  notice  and  proof  of  death  must  be  made  in  strict 
compliance  with  the  requirements  of  the  policy,  which  usually 
prescribes  certain  formalities  and  a  course  of  procedure.  Where 
a  policy  does  not  require  notice  of  the  death  of  the  insured  to 
be  gfiven  to  the  company  there  is  nothing  in  the  nature  of  the 
contract  requiring  such  notice  or  demand  before  bringing  suit. 
Proof  of  death  made  on  a  blank  certificate  furnished  by  the 
company,  stating  that  the  claimant  believed  from  all  the  circum- 
stances that  the  insured  was  murdered,  giving  the  place  at  which 
the  murder  was  supposed  to  have  been  committed,  and  the  date. 


228  INSURANCE 

has  been  held  sufficient.  If  a  company  has  issued  two  policies 
upon  the  life  of  the  same  person,  both  calling  for  the  same  mode 
of  proof  of  death,  and  upon  the  decease  of  the  insured  the  com- 
pany accepts  without  objection  proofs  of  death  under  one  policy, 
the  representatives  of  the  insured  are  not  bound,  in  the  absence 
of  a  special  contract  to  that  effect,  to  furnish  further  proofs  of 
loss  under  the  second  policy.  If  an  officer  of  an  insurance  com- 
pany states  that  the  company  will  not  pay  a  loss,  it  constitutes 
a  waiver  of  a  proof  of  death. 

Discriminations  Prohibited. 

As  a  protection  to  the  public,  the  Legislature  of  Pennsylva- 
nia enacted  a  law  (May  7,  1889,  amended  July  2,  1895),  pro- 
viding that  no  life  insurance  company  doing  business  in  Penn- 
sylvania shall  make  or  permit  any  distinction  or  discrimination  in 
favor  of  individuals,  between  insurants  of  the  same  class  and 
equal  expectations  of  life,  in  the  amounts  or  payments  of  premi- 
ums or  rates  charged  for  policies  of  life  or  endowment  insurance, 
or  in  the  dividends  or  other  benefits  payable  thereon,  or  in  any 
other  of  the  terms  and  conditions  of  the  contract  made  by  it. 
A  company  or  any  agent  thereof  is  also  prohibited  from  making 
any  contract  other  than  is  plainly  expressed  in  the  policy  issued 
thereon,  nor  shall  any  insurance  company  or  agent  pay,  or  the 
insured  receive,  any  rebate  of  premium  payable  on  the  policy  as 
an  inducement  to  the  insurance,  or  any  special  favor  or  advantage 
in  the  dividends  or  other  benefit  to  accrue  thereon,  or  any  val- 
uable consideration  or  inducement  not  set  forth  in  the  contract  of 
insurance.  The  obvious  purpose  of  this  law  is  to  preserve  the 
security  to  which  all  policyholders  are  entitled  by  preventing 
secret  rebates  or  special  privileges  to  the  few,  which  would 
impair  the  value  of  the  security.  Violation  of  this  law  is  a 
misdemeanor. 

Accident  Insurance. 

Certain  general  principles  with  reference  to  insurable  inter- 
est, duty  of  full  disclosure,  etc.,  are  applicable  to  all  forms  of 
insurance  and  it  will  be  unnecessary  in  taking  up  the  several 
branches  of  insurance  to  reiterate  what  has  been  discussed  here- 
tofore. There  are,  however,  certain  features  peculiar  to  each 
form  of  insurance  which  it  is  essential  to  emphasize. 

Accident  insurance  is  a  branch  of  Hfe  insurance,  which  pro- 
tects against  loss  caused  by  accident,  whether  occasioned  by  a 


INSURANCE  229 

bodily  disability  or  fortuitous  death.  In  common  parlance  an 
accident  means  any  unfortunate  happening,  but  in  a  legal  sense 
it  means  any  unexpected  event  which  happens  as  by  chance,  or 
which  does  not  take  place  according  to  the  usual  course  of  events. 
An  injury  is  not  accidental  if  it  happened  through  the  concur- 
rence of  the  will  or  intent  of  the  insured.  An  accidental  injury 
may,  however,  be  the  result  of  the  intentional  act  of  the  insured, 
provided  the  result  could  not  have  been  foreseen.  For  example, 
an  injury  to  the  insured  caused  by  intentionally  jumping  from 
the  platform  of  a  train  of  cars  under  such  excusable  circum- 
stances that  no  harm  could  have  reasonably  been  expected  to  fol- 
low would  be  accidental  and  entitle  the  insured  to  recover.  Like- 
wise the  unintentional  taking  of  poison,  the  sprain  of  one's  ankle 
by  lifting  heavy  weights,  etc. 

The  usual  accident  insurance  policy  protects  the  insured 
from  injuries  or  disabilities  caused  by  "external,  violent  and 
accidental  means."  The  policy  usually  prescribes  the  nature  of 
the  accident  for  which  recovery  may  be  had,  in  which  event  there 
can  be  no  recovery  for  accidents  of  a  different  nature  than  those 
stipulated. 

Unless  expressly  excluded  by  the  terms  of  the  policy,  an 
accident  covers  an  injury  intentionally  inflicted  upon  the  insured 
by  another,  as,  for  example,  in  an  affray  or  fight.  If,  on  the  other 
hand,  such  an  injury  is  excluded,  the  restriction  of  the  contract 
will  prevail, 

A  sunstroke,  when  not  expressly  excluded  from  the  opera- 
tion of  the  policy,  is  generally  considered  to  be  a  disease  rather 
than  an  accident.  Accidental  injury  is  a  phrase  of  such  broad 
scope  that  its  application  has  been  limited  by  many  restrictive 
provisions,  differing  somewhat  in  the  forms  of  policies  adopted 
by  the  different  companies.  A  policy  of  accident  insurance  is  a 
contract  providing  for  the  payment  to  the  insured  of  a  specified 
sum  per  week  (regulated  by  the  amount  of  insurance),  during 
disability  resulting  from  bodily  injuries  effected  through  external, 
violent  and  accidental  means,  which  shall,  independently  of  all 
other  causes,  immediately  and  wholly  disable  the  insured  from 
transacting  any  and  every  kind  of  business  pertaining  to  his 
occupation.  The  ordinary  accident  policy  also  provides  for  the 
payment  of  a  certain  sum  in  case  of  loss  by  severance  of  one 
entire  hand  or  foot,  etc.,  or  if  death  results  from  such  injuries 
within  ninety  days.  The  application  should  be  carefully  read, 
answers  truthfully  made,  premiums  promptly  paid  and  other 
conditions  strictly  complied  with. 


230  INSURANCE 

Construction  of  Terms  in  Accident  Policies. 

Death  by  accidental  drowning  has  been  construed  to  be  by 
"external,  violent  and  accidental"  means,  although  the  cause  is 
internal. 

The  provision  that  the  injury  insured  against  must  be  effected 
by  the  means  specified,  "independently  of  all  other  causes"  is  so 
unreasonable,  indefinite  and  repugnant  to  the  main  purpose  of 
the  contract  that  it  has  been  construed  by  the  Courts  very 
strictly  against  the  insurance  companies.  Thus  in  a  policy  which 
excepted  as  a  risk  death  resulting  from  fits,  the  insurance  will 
be  held  to  cover  a  case  where  the  insured  was  seized  with  a  fit  and 
fell  under  the  wheels  of  a  locomotive  and  was  killed.  If  from 
a  shot  in  the  back  the  insured  has  paralysis  of  the  feet,  it  will 
be  held  to  be  a  loss  of  "two  entire  feet."  The  Courts  have  also 
held  that  death  caused  by  fright  was  an  accident  and  within  the 
protection  of  a  policy,  although  this  is  rather  an  extreme  case. 

The  disability  covered  by  the  policy  must  result  within  a 
reasonable  time  after  the  injury,  the  word  "immediately"  not 
requiring  the  disability  to  be  instantaneous.  The  disability  must, 
however,  be  total ;  but  the  fact  that  the  insured  is  able  to  perform 
certain  portions  of  his  accustomed  work  does  not  prevent  the 
disability  from  being  construed  as  total.  The  occupation  of  the 
insured  is  always  considered  in  this  connection. 

The  term  "occupation"  has  reference  to  the  usual  or  regular 
calling  or  profession,  and  not  to  accidental  acts  and  duties.  An 
accidental  engagement  in  work  involving  greater  risk  will  not 
avoid  the  policy,  unless  such  occupation  is  specially  excepted. 

Injuries  resulting  from  violation  of  the  law  are  not  covered 
by  an  accident  insurance  policy.  Most  accident  policies  contain 
a  stipulation  that  no  claim  shall  be  valid  where  injury  or  death 
result  from  voluntary  exposure  to  unnecessary  danger  or  peril- 
ous adventure.  Voluntary  exposure  is  held  by  the  law  to  mean 
intentional  exposure,  and  a  provision  will  not  prevent  a  recovery 
in  a  case  where  the  act  is  voluntary,  but  the  danger  unforeseen. 
If  reasonable  or  ordinary  prudence  would  pronounce  an  expo- 
sure dangerous,  the  insured  cannot  recover,  and  whether  or  not 
such  an  exposure  was  made  is  a  matter  of  fact  for  a  jury  to 
determine  under  the  circumstances.  Injury  or  death  resulting 
from  disease  or  medical  treatment  are  excepted  risks  for  which 
no  recovery  can  be  had  in  most  accident  policies. 

If  medical  treatment  is  necessary  as  the  natural  consequence 
of  an  accidental  injury,  such  as  a  surgical  operation,  and  the 


INSURANCE  331 

insured  should  die,  the  company  cannot  avoid  its  liability  under 
the  policy  on  the  ground  that  death  resulted  from  medical 
treatment.    The  insured  is  given  the  benefit  of  the  doubt. 

Where  a  policy  provides  that  the  company  shall  not  be  liable 
for  injuries  to  the  insured  received  while  intoxicated,  such  pro- 
vision covers  all  cases  where  the  insured  is  so  far  under  the 
influence  of  intoxicants  as  to  be  unable  to  properly  take  care  of 
his  personal  safety,  irrespective  of  the  actual  cause  of  the  injury 
or  the  degree  of  the  drunkenness. 

Most  companies  except  as  a  risk  accidents  happening  while 
walking  or  being  on  the  bed  or  roadway  of  a  railroad,  or  while 
riding  on  the  platform  or  of  getting  on  or  off  a  railroad  car. 
The  Supreme  Court  of  Pennsylvania  has  held  that  an  accident 
caused  by  the  insured  stepping  off  a  railroad  train  at  night  would 
not  be  included  in  such  exception,  and  it  is  also  the  law  of 
Pennsylvania  that  the  insured  would  not  be  prevented  from  recov- 
ering if  he  was  injured  while  crossing  a  track,  if  he  took  all 
due  precautions.  However,  if  the  insured  is  killed  while  walk- 
ing on  the  roadbed  between  the  tracks,  when  he  might  have  used 
a  sidewalk,  the  exception  applies. 

Most  policies  will  not  protect  against  the  voluntary  or  invol- 
untary taking  of  poison.  In  such  cases  the  courts  have  limited 
the  scope  of  this  clause  to  the  internal  reception  of  a  poisonous 
substance.  Hence  death  due  to  the  external  contact  with  an 
unknown  poisonous  substance  would  be  an  accident  which  would 
justify  recovery  under  the  policy. 

Policies  insuring  against  injuries  while  riding  as  a  passenger 
in  or  on  a  public  conveyance  cover  injuries  received  while  in  the 
actual  prosecution  of  a  journey,  whether  insured  was  at  the  time 
in  a  conveyance  for  transportation  of  passengers  or  not.  Gen- 
erally speaking  walking  cannot  be  held  to  be  "traveling  by  public 
or  private  conveyance,"  but  the  Supreme  Court  of  the  United 
States  has  held  that  under  such  a  policy  the  insured  could  recover 
from  an  injury  received  by  a  fall  on  a  sidewalk  when  walking 
from  a  steamboat  landing  to  a  railway  station,  this  walk  being 
usual  for  travelers  on  that  route,  although  the  insured  might 
have  ridden  in  a  hack. 

Notice  or  Proof  of  Injury  or  Death. 

Notice  and  proof  of  injury  or  death  is  required  by  all  policies 
to  be  promptly  given,  the  time  limit  varying  in  different  com- 
panies.   Where  the  circumstances  of  the  accident  are  such  as  to 


232  INSURANCE 

render  it  impossible  to  comply  with  the  conditions  as  to  notice  and 
proof,  giving  notice  within  a  reasonable  time  after  it  becomes 
possible  to  do  so  has  been  held  sufficient. 

The  holder  of  an  accident  policy  should  promptly  notify  the 
company  of  any  change  in  employment  and  should  avoid  volun- 
tary exposure  to  danger,  trespassing  on  railroads  and  intoxica- 
tion ;  he  should  also  promptly  notify  the  company  of  any  accident. 
Non-observance  of  these  precautions  will  forfeit  the  policy. 

Fire  Insurance. 

A  contract  of  fire  insurance  is  a  contract  to  indemnify  the 
insured  for  a  specified  period  against  loss  or  damage  to  his  prop- 
erty caused  by  fire.  Such  a  contract  of  fire  insurance  must  have 
all  the  elements  of  an  ordinary  contract.  It  is  provided  by  statute 
in  Pennsylvania  that  only  companies  incorporated  for  the  purpose 
can  execute  a  policy  of  fire  insurance. 

As  in  other  forms  of  insurance,  so  in  fire  insurance,  the 
insured  must  have  an  insurable  interest  in  the  subject  matter  of 
the  insurance.  An  insurance  on  property  is  not  an  insurance  of 
the  specific  thing  without  regard  to  ownership,  but  is  a  special 
agreement  of  indemnity  with  the  person,  insuring  him  against 
such  loss  or  damage  as  he  may  sustain,  and  no  recovery  can  be 
had  where  the  insured  has  parted  with  his  ownership.  It  may 
be  stated  as  a  general  rule  of  law  that  any  direct  pecuniary  inter- 
est in  the  property  insured,  which  may  be  injured  by  the  occur- 
rence of  the  risk  insured  against,  constitutes  an  insurable  inter- 
est. The  holder  of  either  legal  or  equitable  title  in  property  has 
such  an  interest,  and  in  case  of  a  loss,  a  trustee  may  recover  the 
full  amount  of  the  policy.  If  the  insured  took  out  his  insurance 
in  good  faith,  under  a  reasonable  belief  that  he  had  title,  his 
want  of  title  would  not  be  a  defense  to  an  action  on  a  policy.  A 
stockholder  has  no  insurable  interest  in  the  property  of  a  cor- 
poration. An  insurable  interest  must  be  capable  of  enforcement 
in  law  or  equity,  and  it  has  therefore  been  held  that  a  turnpike 
company  has  no  insurable  interest  in  a  public  county  bridge  on 
the  line  of  its  road,  but  free  to  all  travel,  even  though  the  company 
voluntarily  contributed  to  the  cost  of  the  erection  and  maintenance 
of  the  bridge. 

An  applicant  for  fire  insurance  should  set  forth  the  amount 
of  his  interest  in  the  property  to  be  covered,  and  should  make  a 
full  and  accurate  disclosure  of  all  facts  aflFecting  the  risk  assumed. 
But  unless  the  insured  has  knowledge  that  a  particular  fact  will 


INSURANCE  233 

increase  the  risk,  he  is  not  bound  to  report  such  fact  to  the  com- 
pany, although  there  is  a  warranty  in  the  policy  that  the  insured 
has  not  omitted  to  state  information  material  to  the  risk. 

The  premium  paid  is  the  consideration  for  the  policy  of  fire 
insurance,  which  should  be  certain  in  amount  and  based  upon 
a  proportionate  rate  of  the  value  at  risk  and  the  probabilities 
of  loss  by  fire. 

In  fire  insurance  the  risk  is  the  contingency  upon  the  hap- 
pening of  which  the  liability  of  the  insurer  attaches.  Loss  by 
fire  means  the  result  of  the  ignition  of  the  property  insured.  To 
illustrate,  where  sugar  was  spoiled  by  great  heat  from  a  fire,  the 
insurance  company  was  held  not  liable,  and  likewise  where  the 
heat  of  the  sun  contracted  timber  without  any  actual  fire.  Fire 
originating  in  spontaneous  combustion  is  within  the  risk.  Dam- 
age caused  by  concussion  caused  by  an  explosion  of  gunpowder 
in  another  building  is  not  within  the  risk.  The  ordinary  fire 
insurance  policy  includes  loss  by  the  incendiary  act  of  the  in- 
sured if  insane,  and  also  includes  the  unintentional  or  careless 
acts  of  third  persons,  whether  his  agents  or  not.  If,  however, 
the  fire  is  caused  by  the  wilful  act  of  the  insured  himself,  or  of 
some  one  acting  with  his  consent  or  knowledge,  the  insurer  will, 
of  course,  be  exonerated.  Arson  by  the  wife  of  the  insured 
without  his  connivance  would  be  no  defense  to  the  company. 

The  duration  of  the  risk  is  limited  by  the  terms  of  the  policy, 
the  risk  commencing  as  soon  as  the  policy  is  executed.  A  fire 
insurance  policy  is  said  to  be  executed  when  the  application  of 
the  party  seeking  protection  is  accepted  by  the  company  and  a 
policy  delivered  in  accordance  therewith.  The  date  of  the  con- 
tract of  insurance  is  usually  the  date  of  the  policy.  It  has  been 
held  that  the  risk  commences  as  soon  as  the  offer  is  accepted, 
even  if  the  premium  has  not  been  paid  and  the  policy  not 
delivered. 

The  policy  usually  sets  forth  the  amount  of  the  insurance, 
which,  as  a  general  rule,  is  three-fourths  or  two-thirds  of  the 
value  of  the  property. 

Excepted  Risks. 

The  ordinary  fire  insurance  policy  usually  excepts  certain 
risks  from  those  protected  against,  the  most  common  of  which  is 
loss  caused  directly  or  indirectly  by  invasion,  insurrection,  riot, 
civil  war  or  military  or  usurped  power,  or  by  order  of  any  civil 
authority.     In  such  cases  the  company  will  not  be  liable.     The 


234  INSURANCE 

company  shall  not  be  liable  for  loss  caused  by  the  neglect  of  the 
insured  to  use  all  reasonable  means  to  save  and  preserve  the 
property  at  and  after  a  fire,  or  when  the  property  is  endangered 
by  fire  in  neighboring  premises.  A  policy  of  insurance  against 
loss  or  damage  by  fire  does  not  include  a  loss  caused  by  removing 
goods  from  a  store  at  a  time  when  nearby  buildings  were  on  fire, 
when,  as  a  matter  of  fact,  the  building  containing  the  insured 
goods  was  not  injured  by  the  fire,  though  the  insured  supposed 
they  would  be.  Goods  stolen  during  a  fire  cannot  be  included  in 
the  loss  recoverable  on  the  policy. 

As  considerable  damage  is  often  caused  by  explosions,  and 
fire  frequently  follows  explosions,  it  is  difficult  to  distinguish 
between  the  loss  caused  by  the  explosion  and  the  loss  caused  by 
fire.  For  the  latter  the  company  will  be  liable;  for  the  former 
it  will  not.  The  average  policy  excepts  as  a  risk  loss  by  explosion 
of  any  kind  or  lightning  (unless  fire  ensues,  and,  in  that  event, 
for  the  damage  by  fire  only).  Liability  for  direct  damage  by 
lightning  may  be  assumed  by  specific  agreement,  however.  The 
company  will  be  liable  for  loss  caused  by  fire  originating  from  the 
explosion  of  a  lamp  on  the  insured  premises,  and  where  the 
insured  property  was  blown  up  with  gunpowder  for  purposes 
of  safety  would  not  relieve  the  insurance  company  from  liability, 
even  though  the  policy  excepted  from  its  operation  a  loss  by 
the  explosion  of  gunpowder. 

If  a  building  or  any  part  thereof  fall,  except  as  the  result  of 
a  fire,  all  insurance  on  such  building  or  its  contents  ceases.  An 
insurance  company  is  not  liable  for  loss  of  accounts,  bills,  cur- 
rency, deeds,  evidences  of  debt,  money,  notes  or  securities.  If 
such  property  were  covered  by  the  policy  the  insurers  would  be 
subjected  to  claims  of  uncertain  amount  and  very  difficult  of 
verification.  If  a  loss  by  fire  is  admitted,  the  burden  of  proof 
is  on  the  company  claiming  exemption  from  liability  to  show 
that  it  falls  within  the  exceptions. 

Description  and  Location  of  Property. 

It  is  necessary  that  the  property  insured  be  accurately 
described,  but  where  the  agent  of  an  insurance  company,  with 
a  full  knowledge  of  the  character  of  the  property,  fills  up  the 
application,  the  insured  is  not  responsible  for  an  erroneous 
description.  It  is  also  necessary  that  the  location  of  the  property 
be  stated  accurately.  Place  is  ordinarily  material  to  the  contract 
and  of  the  very  essence  of  the  risk,  and  a  change  of  locality  with- 


INSURANCE  235 

out  the  consent  of  the  company  removes  the  goods  from  the  pro- 
tection of  the  policy,  though  it  contains  no  special  provision  to 
that  eflfect.  If  consent  to  removal  is  obtained  goods  are  not 
protected  in  transit  unless  the  policy  so  provides. 

Adjustment  of  Loss. 

In  case  of  fire,  whether  the  loss  be  partial  or  total,  the  gen- 
eral rule  of  damages  is  that  the  insurer  is  bound  to  pay  only  so 
much  as  will  indemnify  the  insured.  In  other  words  the  com- 
pany is  not  liable  beyond  the  actual  cash  value  of  the  property 
at  the  time  of  loss,  with  proper  deduction  for  depreciation,  how- 
ever caused.  This  rule  excludes  remote  damages,  such  as  loss 
from  interruption  of  business,  prospective  rent  or  profit,  etc. 
The  difference  between  the  actual  cash  value  of  the  property 
just  before  the  fire  and  its  value  after  the  fire  is  the  measure 
of  indemnity  where  the  property  has  been  injured  and  not 
destroyed.  The  insured  has  the  right  to  be  indemnified  not  only 
for  loss  by  fire,  but  also  for  all  losses  that  are  the  immediate 
results  of  the  fire.  Upon  the  occurrence  of  a  loss  it  is  the  duty 
of  the  insured  to  give  to  the  company  (the  insurer)  proof  and 
notice  of  the  loss,  which  should  be  certified  to  upon  oath.  In 
making  proof  of  loss,  all  the  terms  and  conditions  of  the  policy 
should  be  strictly  and  literally  complied  with. 

Causes  Rendering  Policy  Void.      ' 

The  standard  fire  policy  provides  that  it  shall  be  void  (unless 
otherwise  provided  by  agreement  indorsed  upon  or  added  to 
the  policy),  if  the  insured  "has  or  shall  hereafter  make  or  pro- 
cure any  other  contract  of  insurance  whether  valid  or  not,  on 
property  covered  in  whole  or  in  part  by  the  policy."  This  has 
been  held  to  be  a  reasonable  regulation,  and  the  requirement  to 
give  notice  of  any  other  insurance  upon  the  same  property  is 
applicable  to  subsequent  as  well  as  pre-existing  insurance. 

Unless  special  provision  be  made  to  the  contrary,  the  entire 
policy  shall  be  void  if  the  subject  of  insurance  be  a  manufacturing 
establishment  and  if  it  be  operated  in  whole  or  in  part  at  night 
later  than  ten  o'clock,  or  if  it  ceases  to  be  operated  for  more  than 
ten  consecutive  days.  Where,  however,  a  company  deliberately 
insures  an  idle  establishment,  knowing  the  extent  of  the  hazard, 
the  above  proviso  will  not  prevent  recovery. 

The  entire  policy  shall  be  void  if  the  hazard  be  increased 
by  any  means  within  the  control  or  knowledge  of  the  insured. 


2z(>  INSURANCE 

This  provision  is  intended  to  protect  the  property  from  fire,  by- 
change  in  structure,  methods  of  heating,  addition  of  new  out- 
buildings and  the  Uke,  The  temporary  use  of  benzine  in  an 
insured  building  for  the  purpose  of  cleansing  furniture  is  not 
within  a  condition  against  increase  of  risk  by  any  means  within 
the  power  of  the  insured,  although  the  loss  results  from  the  use 
of  the  benzine.  It  is  a  good  precaution  to  notify  the  company  of 
any  facts  increasing  the  risk  and  obtain  the  written  consent  of 
the  secretary  to  a  continuance  of  the  policy.  It  has  been  held 
by  the  Supreme  Court  of  Pennsylvania  that  if  a  risk  is  increased 
contrary  to  the  provisions  of  a  policy,  the  company  is  absolved 
from  the  contract  although  the  fire  does  not  result  from  the 
increase  of  risk.  A  decrease  of  risk  by  removal  of  a  building 
from  the  insured  premises  cannot  be  set  off  against  an  increase 
of  risk  in  violation  of  a  condition  in  the  policy. 

It  is  ordinarily  provided  that  the  entire  policy  shall  be  void 
if  mechanics  be  employed  in  building,  altering  or  repairing  the 
property  covered  by  the  insurance  for  more  than  fifteen  days 
at  any  one  time. 

The  entire  policy  shall  be  void  if  the  interest  of  the  insured 
be  other  than  unconditional  and  sole  ownership,  or  if  the  sub- 
ject of  insurance  be  a  building  on  ground  not  owned  by  the 
insured  in  fee  simple;  or  if  the  subject  of  insurance  be  personal 
property  and  be  or  become  incumbered  by  a  chattel  mortgage; 
or  if  with  the  knowledge  of  the  insured,  foreclosure  proceedings 
be  commenced  or  notice  of  sale  of  any  property  covered  by  the 
policy  by  virtue  of  any  mortgage  or  trust  deed  be  given,  or  if 
any  change,  other  than  the  death  of  the  insured  take  place  in 
the  interest,  title  or  possession  of  the  subject  of  insurance  (except 
change  of  occupants  without  increase  of  hazard)  whether  by 
legal  process  or  judgment  or  by  voluntary  act  of  insured  or 
otherwise. 

A  clause  in  a  fire  policy  providing  that  it  shall  be  void  if 
the  property  insured  be  levied  upon  or  taken  into  possession 
under  legal  process  is  not  broken  by  a  merely  technical  levy,  with- 
out any  actual  seizure  or  change  of  possession  of  the  goods  or 
land.  Nor  is  such  a  condition  broken  by  the  entry  of  judgment 
on  a  bond  accompanying  a  mortgage  and  the  levying  of  execution 
on  the  property,  where  the  loss  occurs  before  the  sheriff's  sale. 

With  reference  to  the  "entire,  unconditional  and  sole  owner- 
ship" of  the  property  insured,  this  requirement  is  not  broken  by 
executing  a  bill  of  sale  of  personal  property,  either  before  or 
after  the  issuance  of  a  policy  of  insurance  thereon,  where  the 


INSURANCE  237 

bill  of  sale  is  executed  for  money  lent  and  the  insured  retains 
exclusive  possession  of  the  property.  Hence  a  bill  of  sale  given 
to  a  money  loan  company  would  not  be  a  breach  of  this  condition 
if  the  borrower  retained  possession  of  the  goods.  The  condition 
as  to  "unconditional  and  sole  ownership"  relates  to  the  ownership 
of  the  property  at  the  date  of  the  issuance  of  the  policy,  and  not 
at  the  date  when  the  loss  occurs. 

In  regard  to  the  conditions  against  the  transfer  of  the 
property  insured,  if  a  policy  contains  such  a  condition  and  the 
property  insured  be  sold  or  transferred  without  the  consent  of 
the  company,  the  right  to  recover  on  the  policy  will  be  lost 
without  any  act  of  forfeiture  by  the  company.  Notice  to  the 
company  of  an  assignment  of  the  policy  is  not  notice  of  a  transfer 
of  the  insured  property.  An  assignment  in  bankruptcy  of  the 
property  insured  is  not  a  transfer  within  the  meaning  of  the 
condition  under  consideration. 

A  policy  of  fire  insurance  is  in  the  nature  of  a  personal 
contract  between  the  insured  and  the  insurer,  and  the  insured 
cannot  transfer  the  policy  to  any  third  person  without  the  express 
consent  of  the  insured. 

If  a  policy  be  assigned  before  the  loss  occurs  without  the 
consent  of  the  company  indorsed  thereon,  it  will  be  void  and 
without  effect,  but  this  rule  does  not  apply  to  an  assignment  of 
an  interest  in  a  policy  of  fire  insurance  after  the  loss  occurs. 
Such  an  assignment  is  good  even  if  the  insurer  had  no  know- 
ledge of  or  consented  to  the  same.  The  receipt  of  premiums 
for  several  years  by  the  treasurer  or  manager  of  a  fire  insurance 
company,  with  the  knowledge  of  transfer  of  the  property  and 
policy  without  the  approval  of  the  company,  will  estop  (prevent) 
the  company  from  setting  up  a  forfeiture  of  the  policy  by  reason 
of  such  transfer.  Any  condition  prohibiting  the  assignment  of 
the  policy  after  a  loss,  or  any  claim  arising  under  it  without  the 
consent  of  the  company,  is  void. 

A  fire  insurance  company  cannot  refuse  to  approve  the 
assignment  of  a  perpetual  policy  to  one  who  has  become  the 
owner  of  the  insured  property,  provided  the  assignee  is  a  person 
whose  financial  condition,  habits  of  life  and  moral  character  are 
such  as  do  not  increase  the  hazard  of  loss.  For  this  reason  a 
company  could  refuse  to  approve  an  assignment  of  a  perpetual 
fire  policy  to  one  who  has  been  convicted  of  arson  or  incendiarism. 
If  a  company  should  wrongfully  refuse  to  approve  a  transfer,  the 
assignee  can  bring  an  action  for  damages  in  his  own  name  and 


238  INSURANCE 

may  recover  the  cost  of  procuring  perpetual  insurance  for  the 
same  amount. 

The  company  has  a  right  to  know  whether  the  subject  of 
insurance  is  receiving  ordinary  supervision  or  is  being  neglected. 
If  the  property  insured  is  a  dwelling  it  must  have  an  occupant 
living  in  it.  In  the  case  of  other  property  it  must  have  that  kind 
of  care  and  superintendence  which  naturally  belongs  to  the  char- 
acter of  the  occupancy  and  property  described  in  the  policy.  Con- 
sequently a  condition  is  made  in  many  policies  that  if  the  building 
insured,  whether  intended  for  occupancy  by  owner  or  tenant,  be- 
comes vacant  or  unoccupied  and  so  remains  for  ten  days,  the 
company  shall  not  be  liable  for  loss.  This  vacancy  clause  is 
construed  in  view  of  the  situation  and  character  of  the  property 
insured. 

The  entire  policy  shall  be  void  if  the  insured  has  concealed 
or  misrepresented,  in  writing  or  otherwise,  any  material  fact  or 
circumstances  concerning  the  insurance  or  the  subject  thereof, 
or  if  the  interest  of  the  insured  in  the  property  be  not  truthfully 
stated,  or  in  case  of  any  fraud  or  false  swearing  by  the  insured 
touching  any  matter  relating  to  the  insurance  or  the  subject 
thereof,  either  before  or  after  the  loss. 

It  is  the  duty  of  the  insured  immediately  upon  the  occurrence 
of  a  fire  to  notify  promptly  the  company  in  writing  of  any  loss 
sustained  thereby.  Strict  attention  should  be  given  to  the  require- 
ments of  the  contract  in  this  regard,  to  limit  the  loss  so  far  as 
it  is  possible  to  do  so,  and  to  give  an  opportunity  to  the  company 
to  take  such  measures  with  promptness  as  may  seem  wise  to  them 
to  effect  the  same  result.  The  insured  must  furnish  the  company 
with  all  reasonable  evidence  to  enable  it  to  determine  the  nature 
and  extent  of  the  loss.  A  proper  mailing  of  a  notice  of  loss  is  a 
sufficient  compliance  with  the  requirement  of  the  policy  that 
immediate  notice  of  loss  must  be  given  in  writing. 

The  requirement  of  furnishing  notice  of  loss  by  fire  is  regu- 
lated in  Pennsylvania  by  the  act  of  June  27,  1883,  which  provides 
that  when  any  property  shall  be  destroyed  by  fire  in  this  Com- 
monwealth, which  is  covered  by  fire  insurance,  the  conditions  of 
the  contract  as  to  the  notice  of  loss  and  the  furnishing  of  prelim- 
inary proofs  shall  be  deemed  to  have  been  complied  with  if  the 
insured  or  his  assignee  shall  furnish  the  company  at  its  general 
office,  or  to  the  agent  of  the  company  who  countersigned  the 
policy  of  insurance,  the  notice  of  loss  within  ten  days  from  the 
date  of  the  fire,  and  the  preliminary  proofs  within  twenty  days 
from  said  date.    In  case  the  agent  who  countersigned  the  policy 


INSURANCE  239 

of  insurance  shall  have  been  removed  or  succeeded  by  some  other 
agent  of  the  company  after  such  policy  was  written  and  prior  to 
the  date  of  the  fire,  then  the  notice  and  preliminary  proofs  may 
be  served  on  any  other  agent  of  the  company  authorized  to  effect 
contracts  of  insurance  and  countersign  policies  of  any  such 
insurance  companies. 

Where  a  policy  of  fire  insurance  stipulates  that  the  insured 
shall  furnish  a  particular  statement  of  the  loss,  in  the  absence 
of  such  proof  or  waiver  thereof  the  insured  cannot  recover. 
When  there  is  a  stipulation  that  the  insured  shall  produce  for 
examination  all  books  of  account,  bills,  invoices  and  other  vouch- 
ers, or  certified  copies  thereof,  if  originals  are  lost,  there  can  be 
no  recovery  on  the  policy  unless  the  proofs  have  been  furnished, 
or  it  is  shown  that  the  insured  has  made  every  effort  to  furnish 
them.  The  fact  that  the  insured  becomes  insane  about  the  time 
his  property  is  burned  does' not  render  unnecessary  a  compliance 
with  the  condition  of  the  policy  requiring  specific  proofs  of  loss. 

A  contract  of  insurance,  which  by  its  terms  is  entire,  will  not 
be  forfeited  as  to  all  property  covered,  on  account  of  failure  of 
proofs  as  to  part  of  the  property,  unless  so  provided  in  the  policy. 
A  provision  in  a  policy  prescribing  the  time  within  which  a  notice 
of  loss  is  to  be  given,  will  not  be  construed  as  a  cause  of  for- 
feiture, unless  so  stipulated  in  the  policy,  and  where  a  policy  pro- 
vides that  notice  of  loss  shall  be  given  within  twenty-four  hours, 
but  provides  no  forfeiture  for  failure  to  do  so,  the  insured  may 
recover  if  he  gives  notice  within  a  reasonable  time  after  he  knows 
of  the  loss. 

If  the  property  insured  is  personal  property  it  is  the  duty 
of  the  insured  to  separate  the  damaged  from  the  undamaged 
property  and  make  an  inventory,  stating  the  quality  and  cost  of 
each  article  and  the  amount  claimed  thereon.  Proofs  of  loss 
made  and  sworn  to  by  the  insured  and  containing  a  valuation  of 
the  property  destroyed  are  not  conclusive.  The  insured  may 
consequently  prove  and  recover  upon  a  higher  valuation  if  he 
can  show  that  he  submitted  the  proofs  in  ignorance  of  his  legal 
rights.  Where  the  insured  knowingly  and  wilfully  swears  to 
false  proofs  of  loss  the  policy  is  thereby  forfeited. 

The  Company's  Liability. 

The  insurance  company  shall  not  be  liable  beyond  the  actual 
cash  value  of  the  property  at  the  time  any  loss  or  damage  occurs, 
with  proper  deductions  for  depreciation,  however  caused.    Where 


240  INSURANCE 

a  loss  occurs  under  a  fire  policy  the  valuation  of  the  property 
in  the  policy  is  not  controlling  proof  of  actual  value.  The  value 
shall  in  no  event  exceed  what  it  would  then  cost  the  insured  to 
repair  or  replace  the  same  with  material  of  the  same  kind  and 
quality. 

It  is  optional  with  the  company  to  repair,  rebuild  and  replace 
the  property  lost  or  damaged  with  other  of  like  kind  and  quality 
within  a  reasonable  time,  on  giving  notice  within  thirty  days 
after  receipt  of  the  proofs  required,  of  its  intention  so  to  do.  The 
privilege  reserved  by  insurance  companies  to  repair  or  replace  the 
property  destroyed  by  fire  is  a  reservation  for  the  benefit  of  the 
company,  which  they  may  adopt  or  not,  as  they  think  proper,  but 
the  election  once  made  becomes  an  absolute  agreement  and  fixes 
the  rights  and  duties  of  the  parties. 

In  the  event  of  a  disagreement  as  to  the  amount  of  loss 
suffered,  it  is  usually  provided  in  the  policy  that  the  same- shall 
be  ascertained  by  two  competent  and  disinterested  appraisers. 
This  is  called  the  appraisal  or  arbitration  clause,  and  is  very  im- 
portant to  the  companies  in  many  instances  to  relieve  them  from 
extravagant  or  fraudulent  claims.  Where  appraisers  have  been 
appointed  to  determine  the  amount  of  loss,  the  same  does  not 
become  payable  until  sixty  days  after  their  report  is  furnished. 

The  insurance  company  is  not  liable  for  a  greater  proportion 
of  any  loss  on  the  property  insured  than  the  amount  insured  shall 
bear  to  the  total  amount  of  insurance  covering  such  property. 
This  provision  relates  to  two  or  more  insurances  of  the  same 
interest,  and  not  to  insurances  of  different  interests,  though  upon 
the  same  property.  The  object  of  this  provision  contained  in 
every  policy  is  to  prevent  circuity  of  action.  Without  it,  in  any 
case  of  double  insurance,  the  insured  might  bring  his  action 
against  any  one  company  for  the  whole  amount  of  loss  up  to  the 
extent  of  the  policy,  leaving  the  co-insurers  to  settle  their  re- 
spective objections  under  the  equitable  doctrine  of  contribution ; 
under  the  provision  mentioned  the  insured  can  sue  one  company 
only  for  its  ratable  proportion  of  the  loss. 

When  different  policies  contain  similar  terms,  and  are  con- 
current, there  is  little  difficulty  in  dividing  the  loss  proportionately 
among  them ;  but  when  the  policies  cover  in  part  the  same,  and 
in  part  different  property,  and  contain  different  and  inconsistent 
provisions  applicable  to  the  one  loss,  it  may  readily  be  seen  that 
it  is  simply  impossible  to  adjust  the  loss  in  strict  conformity  to 
the  requirements  of  their  repugnant  conditions.  The  problem  of 
adjusting  such  losses  often  becomes  a  great  difficulty,  and  is  not 


INSURANCE  241 

always  understood  by  the  judges,  who,  no  matter  how  learned 
they  may  be  in  the  law,  are  often  insufficiently  familiar  with  the 
business  of  insurance  and  the  science  of  mathematics  to  be  able 
to  master  the  situation  properly. 

Subrogation. 

The  doctrine  of  subrogation  has  such  an  important  bearing 
upon  the  subject  of  fire  insurance,  that  it  becomes  necessary 
to  understand  it  clearly. 

Subrogation  is  an  equity  or  right  called  into  existence  for 
the  purpose  of  enabling  a  party  secondarily  liable,  but  who  has 
paid  the  debt,  to  reap  the  benefit  of  any  securities  or  remedies 
which  the  creditors  may  hold  as  against  the  principal  debtor,  by 
means  of  which  the  party  paying  the  debt  may  be  recompensed. 
To  illustrate,  a  surety  who  pays  a  debt  which  has  been  reduced 
to  a  judgment  is  entitled  to  have  the  judgment  kept  alive  for  his 
benefit  and  to  enjoy,  as  against  the  principal  debtor,  the  advan- 
tages which  could  have  been  claimed  by  the  judgment  creditor. 

If  an  insurance  company  shall  claim  that  the  fire  was  caused 
by  the  act  or  neglect  of  any  person  or  corporation,  the  company 
on  payment  of  the  loss  shall  be  subrogated  to  the  extent  of  such 
payment,  to  all  right  of  recovery  by  the  insured  for  the  loss 
resulting  therefrom,  and  such  right  shall  be  assigned  to  the  com- 
pany by  the  insured  on  receiving  such  payment.  This  right  of 
subrogation  is  based  upon  the  equitable  principle  that  the  neg- 
ligent person  who  caused  the  loss  and  who  is  primarily  liable, 
ought  to  be  made  ultimately  responsible  for  the  damages  sus- 
tained. The  insured,  in  the  first  instance,  has  his  option  between 
two  forms  of  remedy.  If  he  pursues  his  remedy  against  the 
wrongdoer  and  recovers  compensation,  the  insurance  company 
will  escape.  But  if  he  chooses  first  to  enforce  his  claim  against 
the  insurance  company,  the  latter  is  entitled,  by  way  of  sub- 
rogation, to  have  recourse  over  against  the  guilty  party  for 
compensation. 

Actions  by  and  Against  Insurance  Companies. 

Where  two  policies  arc  issued  by  a  company  at  the  same  time 
to  the  same  party  and  on  the  same  goods,  and  a  loss  falls  within 
the  terms  of  each,  but  greater  than  the  amount  of  either  policy, 
though  less  than  the  aggregate  of  both  policies,  the  insured  may 
recover  a  single  judgment  on  both  policies  for  his  entire  loss. 

A  clause  in  a  policy  of  fire  insurance  limiting  the  time  within 

16 


242  INSURANCE 

which  the  insured  may  bring  action  thereon  is  not  void  as  being 
against  public  policy,  and  the  fact  that  the  action  was  not  brought 
within  the  time  specified  prevents  recovery. 

The  ordinary  fire  insurance  policy  contains  a  clause  to  the 
effect  that  no  suit  or  action  on  the  policy  for  the  recovery  of  any 
claim  shall  be  sustained  in  any  Court  of  law  or  equity  until  after 
full  compliance  by  the  insured  with  all  the  requirements  of  the 
policy,  nor  unless  commenced  within  one  year  next  after  the  fire. 

Compliance  with  a  condition  limiting  the  time  within  which 
suit  must  be  brought  may  be  waived  by  the  company.  Such  a 
condition  may  be  waived  by  a  course  of  dealing  on  the  part  of 
the  company  by  which  it  postpones,  on  various  grounds,  settle- 
ment of  the  claim  beyond  the  period  limited,  or  by  representations 
and  assurances  that  the  insurance  will  be  paid,  whereby  suit  is 
postponed. 

If  the  insured  has  failed  to  bring  suit  within  the  specified 
time  after  loss,  a  clear,  distinct  and  unequivocal  promise  to  pay, 
made  after  the  expiration  of  the  time  limited,  amounts  to  a  new 
contract  for  a  valuable  consideration  and  is  enforceable. 

The  usual  fire  insurance  policy  contains  the  following  clause : 
"If  with  the  consent  of  the  company  an  interest  under  the  policy 
shall  exist  in  favor  of  a  mortgagee,  or  of  any  person  or  corpora- 
tion having  an  interest  in  the  subject  of  insurance  other  than  the 
interest  of  the  insured,  as  described  herein,  the  conditions  here- 
inbefore contained  shall  apply  in  the  manner  expressed  in  such 
provisions  and  conditions  of  insurance  relating  to  such  interest 
as  shall  be  written  upon,  attached  or  appended  thereto."  This  is 
called  the  "Mortgagee  Clause."  If  the  owner  of  property,  after 
placing  a  policy  of  fire  insurance  thereon,  should  subsequently 
mortgage  the  same,  he  should  have  attached  to  the  policy  the 

following :    "Attached  to  and  forming  a  part  of  Policy  No. 

of  the Fire  Insurance  Company. 

"Loss  or  damage,  if  any,  under  the  policy  shall  be  payable 
to ,  as  mortgagee,  as  interest  may  appear,  and  the  insur- 
ance as  to  the  interest  of  the  mortgagee  only  therein,  shall  not 
be  invalidated: 

"By  any  act  or  neglect  of  the  mortgagor  or  owner  of  the 
within-described  property ; 

"Nor  by  foreclosure  or  other  proceedings  or  notice  of  sale 
relating  to  the  property; 

"Nor  by  any  change  in  the  title  or  ownership  of  the  prop- 
erty, nor  by  the  occupation  of  the  premises  for  purposes  more 
hazardous  than  are  permitted  by  the  policy.    Provided,  that  in 


INSURANCE  243 

case  the  mortgagor  or  owner  shall  neglect  to  pay  any  premium 
due  on  the  policy,  the  mortgagee  shall,  on  demand,  pay  the  same ; 
and  Provided  also,  that  the  mortgagee  shall  notify  the  company 
of  any  change  of  ownership  or  occupancy  or  increase  of  hazard 
which  shall  come  to  the  knowledge  of  said  mortgagee,  and,  unless 
permitted  by  the  policy,  it  shall  be  noted  thereon  and  the  mort- 
gagee shall,  on  demand,  pay  the  premium  for  such  increased 
hazard  for  the  term  of  the  use  thereof;  otherwise  the  policy 
shall  be  null  and  void." 

The  company  reserves  the  right  to  cancel  the  policy  at  any 
time,  as  provided  by  its  terms,  but  in  such  case  the  policy  shall 
continue  in  force  for  the  benefit  only  of  the  mortgagee  for  ten 
days  after  notice  to  the  mortgagee  of  such  cancellation,  and  shall 
then  cease,  and  the  company  shall  have  the  right  on  like  notice 
to  cancel  the  agreement. 

Whenever  the  company  shall  pay  the  mortgagee  any  sum 
for  loss  or  damage  under  the  policy,  and  shall  claim  that  as  to 
the  mortgagor  or  owner,  no  liability  existed,  the  company  shall, 
to  the  extent  of  such  payment,  be  subrogated  to  all  the  rights 
of  the  party  to  whom  such  payment  shall  be  made,  under  all 
securities  held  as  collateral  to  the  mortgage  debt,  or  may  at  its 
option  pay  to  the  mortgagee  the  whole  principal  due  on  the  mort- 
gage, and  shall  thereupon  receive  a  full  assignment  and  transfer 
of  the  mortgage  and  of  all  other  securities. 

Lost  Policies. 

It  frequently  occurs  that  the  insured  loses  the  policy  of  in- 
surance covering  his  property.  In  such  case,  it  is  provided  by 
statute  in  Pennsylvania  (act  of  March  4,  1850),  that  the  company 
must,  upon  proof  of  the  loss  or  destruction  of  the  policy,  furnish 
a  copy  of  the  same,  together  with  the  transfers  which  have  been 
approved  and  recorded  on  the  books  of  the  company.  A  copy 
of  the  original  policy  so  furnished  is  as  effectual  for  the  security 
and  indemnification  of  the  person  holding  same  as  the  original. 

Marine  Insurance. 

Marine  insurance  is  a  contract  to  indemnify  against  losses 
connected  with  navigation,  its  principal  feature  being  to  insure 
risks  to  which  a  ship,  cargo,  freight,  profits  or  other  insurable 
interest  in  property  may  be  exposed  during  a  certain  voyage  or 
a  fixed  period  of  time.  The  evidence  of  a  contract  of  marine 
insurance  is  the  policy,  and  such  a  contract  must  have  all  the 


244  INSURANCE 

essentials  of  a  contract  for  any  other  purpose.  In  every  contract 
of  marine  insurance  there  are  three  implied  warranties,  relating 
to  seaworthiness,  deviation  and  the  legality  of  the  adventure. 

Implied  Warranties — Seaworthiness. 

In  every  policy  of  marine  insurance  there  is  implied  a  war- 
ranty that  the  ship  is  seaworthy  at  the  time  the  risk  commences. 
Under  this  warranty  it  is  not  necessary  that  the  vessel  be  sea- 
worthy during  the  entire  voyage,  but  merely  when  the  risk 
attaches.  By  seaworthy  we  mean  that  the  vessel  is  in  a  fit  state 
as  to  repairs,  equipment  and  crew  to  encounter  the  ordinary 
perils  of  the  voyage  which  is  insured.  The  cargo  of  the  vessel 
must  be  properly  stowed  and  its  weight  not  in  excess  of  the 
vessel's  safe  carrying  capacity.  Neither  the  ignorance  nor  the 
innocence  of  the  insured  will  relieve  him  from  the  consequences 
of  a  breach  of  warranty  as  to  seaworthiness. 

Deviation. 

The  second  implied  warranty  in  every  contract  of  marine  in- 
surance is  that  when  the  voyage  contemplated  by  a  policy  is 
described  by  places  of  beginning  and  ending  there  will  be  no 
voluntary  deviation  from  the  course  fixed  by  mercantile  usage, 
and  no  unreasonable  delay  in  the  commencement  or  prosecution 
of  the  voyage.  A  deviation  for  the  purpose  of  saving  persons 
whose  lives  are  in  jeopardy  will  not  be  a  breach  of  this  warranty, 
which  rule  is  established  on  principles  of  humanity,  but  a  devia- 
tion will  not  be  excused  if  made  for  the  purpose  of  saving 
property. 

Legality. 

The  third  implied  warranty  in  contracts  of  marine  insurance 
is  that  the  voyage  shall  be  legal  regarding  both  its  nature  and 
mode  of  conducting  it.  If  the  insured  engages  in  smuggling  or 
attempts  to  violate  the  revenue  laws,  or  carries  passengers  when 
the  vessel  is  not  licensed  by  the  Board  of  Trade  to  do  so,  his 
actions  will  render  his  policy  void. 

Express  Warranties. 

An  express  warranty  in  a  policy  of  marine  insurance  is  an 
agreement  inserted  in  the  policy  which  alleges  the  existence  of 
certain  facts  or  promises  the  performance  of  certain  acts.     An 


INSURANCE  245 

express  warranty  need  not  be  inserted  in  the  policy,  but  may  be 
written  on  a  separate  paper  referred  to  therein. 

An  express  warranty  to  sail  with  convoy  can  only  be  com- 
plied with  when  the  vessel  sails  with  a  legally  appointed  convoy 
for  the  entire  voyage  insured.  If  a  policy  contain  an  express 
warranty  of  neutrality,  the  vessel  or  cargo  must  be  the  property 
of  a  citizen  of  a  neutral  country,  and,  unless  the  vessel  carries 
the  proper  documents  to  prove  its  neutrality,  the  express  war- 
ranty will  be  broken  and  the  policy  become  void.  If  the  ownership 
of  a  vessel  is  warranted,  and  the  same  be  in  the  name  of  another 
than  the  party  mentioned  in  the  policy,  a  breach  of  this  warranty 
would  result. 

The  same  distinction  between  a  warranty  and  a  misrepresen- 
tation applies  to  contracts  of  marine  insurance  in  the  same  man- 
ner as  we  have  observed  in  connection  with  other  contracts.  A 
f)olicy  of  marine  insurance  will  be  avoided  in  the  case  of  a  fraudu- 
lent misrepresentation,  even  if  the  loss  arise  from  a  cause  wholly 
unconnected  with  such  misrepresentation. 

The  insured  must  communicate  every  fact  within  his  knowl- 
edge which  would  induce  the  insurer  to  refuse  the  risk  or  demand 
a  higher  premium. 

Insurable  Interest  as  Applied  to  Marine  Insurance. 

It  is  a  well-established  rule  that  any  person,  with  the  excep- 
tion of  an  alien  enemy,  who  is  the  owner  of  a  vessel  or  has  an 
insurable  interest  in  the  property,  may  have  the  same  insured. 

As  in  the  case  of  fire  insurance,  so  in  marine  insurance,  a 
party  has  an  insurable  interest  if  the  loss  of  the  property  insured 
would  result  in  pecuniary  damage  to  himself.  The  Supreme 
Court  of  Pennsylvania  has  held  that  pecuniary  damage  may  re- 
sult not  only  to  a  person  who  has  an  unqualified  property  in  the 
thing  insured,  but  also  to  a  person  who  has  any  reasonable 
expectation  of  legitimate  profit  or  advantage  to  spring  therefrom. 
For  example,  a  person  who  loans  money  on  a  supercargo  or  on 
the  credit  of  a  vessel  has  an  insurable  interest  therein.  Likewise 
a  person  who  purchases  goods  which  are  delivered  to  a  wharf  or 
railroad  station  may  insure  their  safe  transit. 

The  owners  of  a  vessel  and  cargo  who  are  engaged  in  a  joint 
venture,  stand  in  the  relation  of  partners,  each  having  a  lien  on 
the  vessel  and  cargo  for  his  own  interest  in  the  co-partnership. 
A  part  owner  has  an  insurable  interest  in  the  joint  venture,  to 
the  extent  of  his  advances  and  disbursements  made  on  account 


246  INSURANCE 

thereof.  An  insurable  interest  may  spring  from  a  prior  insur- 
ance, as  occurs  when  one  company  which  has  assumed  a  risk 
causes  the  property  to  be  reinsured  in  another  company. 

Any  property  engaged  in  or  connected  with  maritime  trade 
may  form  the  proper  subject  of  marine  insurance.  Such  property 
may  include  the  wharves  at  which  the  vessels  touch,  the  ware- 
houses wherein  goods  are  stored,  vessels,  cargo,  freight,  the 
profits  of  a  voyage,  advances  bottomry,  the  insurance  premium, 
and  the  solvency  of  the  insurance  company.  The  word  "freight" 
has  a  double  meaning,  sometimes  implying  the  cargo,  and  some- 
times the  profits  of  the  ship  earned  by  carrying  a  cargo.  An 
insurance  on  the  body  of  a  vessel  includes  whatever  is  appur- 
tenant to  the  ship.  Legal  insurance  cannot  be  placed  upon  an 
illegal  cargo.  A  lawful  cargo  may,  however,  be  insured,  although 
purchased  with  the  proceeds  of  an  illegal  voyage.  The  property 
insured  must  be  described  with  sufficient  accuracy  as  to  identify 
it  clearly. 

The  consideration  of  the  contract  of  marine  insurance  is  the 
premium  which  is  payable  before  the  risk  attaches  and  may  be 
paid  in  cash  or  by  promissory  note.  If  the  vessel  insured  fails  to 
sail  or  the  cargo  insured  is  not  carried,  no  risk  is  incurred  and 
the  premium  paid  must  be  returned  by  the  insurers.  If,  however, 
the  risk  attaches  for  a  single  instance,  the  premium  need  not  be 
returned. 

The  risk  in  marine  insurance  is  the  contingency  or  event 
upon  the  happening  of  which  the  insurer's  liability  attaches.  It 
is  very  important  that  the  duration  of  the  risk  be  distinctly  set 
forth.  If  a  ship  has  been  insured  and  the  policy  reads  from  a 
specified  port,  the  risk  commences  as  soon  as  the  vessel  lifts 
anchor.  Some  marine  policies  read  "at  and  from"  a  certain  port, 
in  which  event  the  risk  commences  at  the  time  the  policy  is  issued, 
if  the  vessel  at  that  time  was  at  the  port  named.  The  risk  on  a 
vessel  ends  when  the  same  is  moored  at  the  port  of  discharge,  in 
such  a  manner  that  its  cargo  may  be  unloaded  safely. 

If  a  cargo  is  the  subject  of  insurance,  the  risk  will  commence 
when  the  cargo  is  loaded  on  the  vessel  and  will  terminate  when 
the  cargo  is  landed  at  the  port  of  discharge.  If  a  certain  quantity 
of  goods  is  insured  for  a  specific  voyage,  part  of  the  cargo  cannot 
be  sent  on  one  voyage  and  the  remainder  on  a  second  voyage. 
In  such  an  event,  the  policy  of  insurance  will  only  cover  the  goods 
sent  on  the  first  voyage. 

A  policy  of  marine  insurance  for  a  specified  term,  but  with 
a  condition  annexed  that  if  the  vessel  be  at  sea  when  the  term 


INSURANCE  247 

expires,  the  risk  is  to  continue  until  she  arrives  at  her  port  of 
destination  in  the  United  States,  will  not  cover  a  loss  accruing 
after  the  limit  of  the  policy,  unless  on  that  date  the  vessel  is  on 
her  voyage  to  her  port  of  destination  in  the  United  States. 

Different  Kinds  of  Marine  Policies. 

The  amount  which  is  recoverable  in  the  event  of  loss  is  de- 
termined by  the  form  of  the  policy.  Marine  policies  are  of  two 
kinds  (i)  open,  and  (2)  valued. 

If  an  open  policy,  no  definite  amount  is  stated  as  the  value 
of  the  insurance,  but  the  insurer  agrees  to  compensate  the  insured 
for  such  losses  as  he  can  prove  he  has  in  reality  sustained.  In  an 
open  policy,  the  owner  of  a  vessel  which  has  been  lost  or  entirely 
destroyed,  may  recover  the  value  of  the  vessel  at  the  time  the 
insurance  was  placed.  The  provisions,  outfit  and  wages  paid  in 
advance,  together  with  the  premium  of  insurance,  will  all  be 
considered  in  estimating  the  real  value  of  the  vessel.  If  a  cargo 
is  destroyed,  the  owner  may  recover  the  market  value  thereof  at 
the  time  the  vessel  commenced  the  voyage.  The  amount  recov- 
erable on  an  open  policy  of  marine  insurance  is  limited  to  the 
value  of  the  interest  which  the  insured  has  in  the  vessel  or  cargo 
when  the  loss  occurs. 

In  a  valued  policy,  on  the  other  hand,  a  stipulated  sum  is 
named  as  the  value  of  the  property  insured,  which  will  be  paid 
upon  the  happening  of  the  contingency  insured  against.  Upon 
the  total  loss  of  the  property  insured  under  a  valued  policy,  the 
insured  may  recover  the  full  amount  named  therein,  regardless 
of  the  actual  value  of  the  interest.  An  actual  total  loss  occurs 
when  the  subject  insured  wholly  perishes  or  its  recovery  is  ren- 
dered hopeless.  If  a  ship  is  so  injured  l?y  the  perils  of  the  sea 
as  to  be  incapable  of  repair,  the  loss  is  total,  though  her  materials 
survive  either  in  fragments  or  bound  together  in  the  original 
form.  Likewise  if  goods  are  so  badly  damaged  as  to  become 
incapable  of  use  for  the  purpose  intended,  there  is  an  actual  total 
loss.  When  a  partial  loss  occurs,  the  better  rule  seems  to  be  that 
the  valuation  contained  in  the  policy  will  be  used  as  a  basis  to 
determine  the  actual  loss  for  which  compensation  will  alone  be 
given.  In  a  valued  policy  the  amount  named  should  represent 
the  real  value  of  the  ship  or  cargo,  together  with  incidental 
expenses. 

Profits  and  freight  are  frequently  made  the  subject  of 
valued  policies  of  insurance. 


248  INSURANCE 

A  contract  of  marine  insurance  is  not  complete  and  effective 
until  the  parties  have  agreed  upon  the  duration  of  the  risk,  the 
perils  insured  against,  the  amount  to  be  paid  in  event  of  loss, 
and  the  rate  of  the  premium. 

Perils  Covered. 

In  marine  insurance,  the  insurer  is  only  liable  for  extraor- 
dinary risks.  The  vk^arranty  of  seaworthiness,  as  was  heretofore 
observed,  is  an  assurance  that  the  vessel  is  competent  to  encounter 
all  ordinary  perils  with  safety. 

By  "perils  of  the  sea,"  which  are  insured  against,  is  meant 
those  perils  incident  to  navigation  from  the  elements,  the  ocean, 
its  rocks  and  shores.  The  policy  only  covers  the  marine  casual- 
ties which  result  from  the  violent  action  of  the  elements,  and 
not  those  resulting  from  their  natural  influence  upon  the  vessel  or 
cargo.  Running  aground  in  a  storm,  injuries  to  animals  or  cargo 
by  being  tossed  about  or  becoming  wet,  or  collision  with  another 
vessel  in  a  fog,  are  all  perils  of  the  sea  against  which  a  policy  of 
marine  insurance  is  a  protection. 

If  a  vessel  is  unheard  of  for  a  long  time  after  its  arrival  is 
due  the  law  presumes  that  the  vessel  was  lost  by  an  extraordinary 
peril  of  the  sea,  in  which  event  the  insurer  will  be  liable. 

Any  loss  of  property  occasioned  by  fire  may  be  insured 
against  in  a  marine  insurance  policy.  Fire  must  result  from 
some  extraordinary  cause  and  not  the  inherent  quality  of  the 
property  taking  fire  in  order  to  hold  the  company  liable.  For 
example,  an  insurance  company  would  not  be  liable  on  a  marine 
policy  if  the  cargo  insured  consisted  of  hemp  in  a  state  of  efferves- 
cence, which  generated  fire  and  consumed  it.  The  insurer  is 
liable  for  goods  damaged  by  throwing  water  thereon  to  extinguish 
fire  and  for  any  other  loss  or  injury  which  is  the  natural  and 
proximate  effect  of  the  fire. 

The  insurance  company  is  also  liable  for  losses  resulting 
from  piracy  or  theft. 

It  is  no  defense  to  an  action  on  a  marine  insurance  policy 
that  a  loss  caused  directly  by  a  peril  of  the  sea  happened  through 
the  negligence  of  the  captain  or  crew.  In  such  case  it  is  suffi- 
cient to  aver  a  loss  by  the  perils  of  the  sea,  which  were  insured 
against,  and  which  directly  caused  the  loss.  A  leak  in  a  vessel, 
occasioned  by  the  gnawing  of  rats,  without  the  neglect  of  the 
captain,  is  a  peril  of  the  sea  within  the  meaning  of  a  policy  of 
marine  insurance. 


INSURANCE  249 

Barratry. 

Barratry  is  any  illegal  act  committed  by  the  master  or  mari- 
ner, in  his  capacity  as  such,  to  the  prejudice  of  the  owner  of  the 
vessel,  and  has  two  essential  elements.  It  can  only  be  committed 
against  the  owner  of  the  ship,  and  consequently  if  the  master  of 
the  vessel  is  the  sole  owner  he  cannot  commit  barratry  against 
other  parties  in  interest  as  shippers  of  goods. 

A  captain,  however,  who  is  a  part  owner  of  a  ship,  may  be 
guilty  of  barratry,  as  against  the  other  part  owners.  If  the  cap- 
tain of  a  vessel  is  guilty  of  a  fraudulent  act,  for  his  own  benefit, 
and  the  owner  of  the  vessel  is  ignorant  of  the  act,  and  neither 
authorized  it  nor  consented  to  it,  it  is  a  case  of  barratry  within 
the  indemnity  of  a  policy  of  marine  insurance.  Though  a  policy 
of  marine  insurance  will  protect  against  loss  through  mere  neg- 
ligence and  carelessness,  yet  it  will  not  protect  against  the  mis- 
conduct of  the  party  insured,  and  if  a  loss  results  therefrom  the 
owner  of  the  property  must  bear  it. 

The  second  necessary  element  of  barratry  is  that  the  loss 
resulting  therefrom  must  happen  during  the  continuance  of  the 
voyage  and  not  after  the  vessel  has  been  safely  moored  at  the 
port  of  destination. 

Losses  not  Protected. 

A  policy  of  marine  insurance  does  not  protect  against  the 
usual  perils  to  which  every  vessel  is  exposed,  but  only  against 
such  as  are  extraordinary,  as  heretofore  stated.  The  insurer  is 
therefore  not  liable  for  losses  due  to  ordinary  wear  and  tear  or 
natural  decay,  nor  for  losses  due  to  the  inherent  weakness  of  the 
thing  lost,  as,  for  example,  the  loss  of  rotten  rigging  or  the  loss 
of  a  cargo  caused  by  spontaneous  combustion.  Where  the  cargo 
consists  of  perishable  goods,  the  insurer  usually  limits  his  liability 
by  stipulating  in  the  policy,  by  way  of  memorandum,  that  it  will 
not  be  liable  on  same  for  the  whole  loss.  The  purpose  of  intro- 
ducing such  a  condition  into  the  policy  is  to  guard  against  lia- 
bility for  losses  not  arising  from  maritime  perils,  but  which  are 
due  to  the  perishable  nature  of  the  goods. 

Most  policies  of  marine  insurance  contain  a  proviso  that  the 
company  shall  only  be  liable  in  the  event  of  loss  for  such  part  of 
the  property  destroyed  as  is  not  covered  by  a  prior  insurance.  In 
this  event  a  subsequent  policy  will  not  take  effect  until  the  prior 
policy  is  exhausted,  and  if  the  prior  policy  is  sufficient,  the 
subsequent  policy  will  be  suspended.     If  the  insured  has  taken 


250  INSURANCE 

out  several  policies  of  the  same  date,  each  will  be  responsible  for 
the  entire  risk,  and  it  is  optional  with  the  insured  as  to  which 
policy  he  will  bring  suit  on.  Under  the  equitable  doctrine  of 
contribution,  the  company  held  liable  may  compel  the  other  com- 
panies who  were  equally  liable  to  contribute  their  proportionate 
shares. 

General  Average. 

A  general  average  loss  has  been  defined  to  be  "a  loss  arising 
out  of  extraordinary  sacrifices  made,  or  extraordinary  expenses 
incurred  for  the  preservation  of  a  ship  or  cargo."  The  plainest 
principles  of  equity  dictate  that  the  sacrifices  so  submitted  to 
should  be  made  good  and  the  expenses  incurred  repaid,  by  a 
general  contribution  from  all  those  benefited  by  either  the  one 
or  the  other,  in  proportion  to  the  value  of  the  property  which 
those  sacrifices  and  expenses  have  been  instrumental  in  saving. 
In  other  words,  if  several  parties  are  interested  in  a  particular 
voyage,  and  it  becomes  necessary  to  throw  overboard  part  of  the 
cargo,  the  amount  of  the  loss  is  ascertained  directly  after  the 
ship's  arrival  at  her  port  of  destination  and  is  there  assessed 
upon  each  of  the  co-adventurers,  who  in  law  are  liable  to  the 
party  who  has  suffered  by  the  loss.  If  it  is  necessary  to  sacrifice 
property  to  save  the  ship  or  cargo,  the  owner  thereof,  if  insured, 
is  reimbursed  his  loss  by  his  underwriters.  The  latter  by  virtue 
of  the  doctrine  of  subrogation,  are  entitled  to  claim  against  the 
owners  of  the  interests  saved,  who,  if  insured,  are  in  their  turn 
entitled  to  claim  from  their  underwriters  the  same  proportion  of 
the  sum  insured  in  the  policy  as  the  amount  assessed  upon  them 
by  way  of  contribution  bears  to  the  whole  value  of  their  property 
saved  by  the  sacrifice.  Consequently,  when  a  ship  and  cargo  are 
insured,  general  average  losses,  when  their  amount  is  once  ascer- 
tained, are  settled  by  the  underwriters.  The  means  adopted 
whereby  the  amount  of  damages  is  ascertained,  the  different 
parties  in  interest  assessed,  and  those  suffering  losses  reimbursed, 
is  called  the  adjustment  of  general  average. 

The  leading  characteristic  of  a  general  average  loss  is  that 
it  is  the  intentional  result  of  the  act  of  man,  i.  e.,  it  arises  from 
damage  purposely  submitted  to  or  directly  effected  by  the  agency 
and  will  of  man,  and  not  accidentally  caused  by  the  agency  of  the 
winds  and  waves.  To  entitle  the  party  sustaining  such  loss  to  a 
general  average  contribution  it  must  appear  to  have  been  incurred 
with  a  view  to  the  general  safety  of  the  ship,  cargo  and  freight. 


INSURANCE  251 

The  general  safety  must  also  be  the  motive  for  the  sacrifice,  and 
if  made  with  any  other  object  in  view  it  can  give  no  claim  to  a 
general  average  contribution.  For  example,  no  recovery  could 
be  had  where  the  captain  of  a  ship  on  the  point  of  capture  threw 
money  overboard,  not  to  save  the  ship  and  cargo,  but  merely  to 
prevent  the  money  from  falling  into  the  enemy's  hands. 

To  constitute  a  general  average  loss  it  is  further  necessary 
that  it  should  have  been  incurred  under  the  pressure  of  a  real 
and  imminent  danger.  The  sacrifices  may  have  been  made  in 
good  faith  for  the  general  safety,  but  unless  that  safety  shall 
appear  to  have  been  really  endangered  a  claim  for  contribution 
cannot  be  sustained. 

Voluntary  Stranding. 

In  the  United  States  the  voluntary  stranding  of  a  ship  when 
in  peril  is  held  to  be  a  general  average  act,  regardless  of  whether 
the  vessel  becomes  ultimately  a  total  wreck  or  not.  General 
average  is  not,  however,  allowed  in  favor  of  a  ship  owner  if  the 
voluntary  stranding  was  made  necessary  by  the  negligent 
navigation  of  the  ship. 

A  frequent  cause  of  general  average  expenses  occurs  where 
a  vessel  in  peril  puts  into  a  port  of  refuge  for  repairs  to  enable 
her  to  continue  the  voyage.  Wages  and  provisions  of  the  crew 
are  allowed,  in  general  average,  from  the  time  of  deviating  from 
the  voyage  for  the  purpose  of  putting  into  a  port  of  refuge  until 
the  voyage  is  resumed,  or  until  the  cargo  and  vessel  are  separated, 
or  until  there  is  no  longer  any  prospect  of  continuing  the  voyage. 

The  rules  of  practice  for  the  adjustment  of  general  average 
losses  vary  greatly  in  different  countries  and  in  different  ports. 
It  has  been  held  that  an  adjustment  made  at  the  end  of  the 
voyage,  if  valid  there,  is  valid  anywhere,  and  the  first  port 
reached  subsequent  to  the  general  average  act,  where  any  or  all 
the  interests  are  separated,  may  be  the  end  of  the  voyage  for 
this  purpose. 

Total  Losses. 

A  total  loss,  in  the  law  of  marine  insurance,  is  one  on 
account  of  which  the  assured  is  entitled  to  recover  from  the 
underwriter  the  whole  amount  of  his  subscription.  Total  losses 
are  either  absolute  or  constructive.  An  absolute  total  loss  is  one 
which  entitles  the  insured  to  claim  the  entire  insurance  from  the 
underwriter  without  the  necessity  of  giving  notice  of  abandon- 


252  INSURANCE 

merit.  On  the  other  hand,  a  constructive  total  loss  is  one  which 
entitles  the  insured  to  make  such  claim  on  condition  of  giving 
such  notice  of  abandonment.  An  absolute  total  loss  results  when 
the  subject  of  the  insurance  wholly  perishes  or  its  recovery  is 
rendered  hopeless,  whereas  a  constructive  total  loss  takes  place 
when  the  subject  of  insurance  is  not  wholly  destroyed,  but  its 
destruction  is  rendered  highly  probable  and  its  recovery  in  part 
doubtful.  The  difference,  therefore,  between  an  absolute  and  a 
constructive  total  loss  is  that  in  the  former  case  the  loss  of  the 
thing  insured  to  the  owner  thereof  is  ascertained  and  permanent, 
while  in  the  latter  case  it  is  inferential  and  temporary.  For 
example,  where  a  vessel  founders  in  deep  water,  so  as  to  leave 
no  reasonable  hope  of  recovery,  the  loss  is  absolute.  If,  however, 
the  vessel  sinks  in  shallow  water,  so  as  to  admit  of  a  reasonable 
hope  of  raising  and  restoring  her  only  at  a  cost  exceeding  her 
value  when  raised  or  restored,  the  loss  is  constructive.  Likewise 
where  a  cargo  is  so  damaged  by  sea  perils  that  the  goods  cannot 
be  brought  to  their  destination  in  specie,  the  loss  is  absolute ;  but 
if,  though  damaged,  it  is  possible  to  bring  them  to  their  destina- 
tion in  specie  only  at  a  cost  exceeding  their  value  when  so 
brought  the  loss  is  constructive. 

Notice  of  abandonment  by  the  insured  to  the  underwriters 
is  a  condition  precedent  to  the  right  to  recover  for  a  constructive 
total  loss.  The  exception  where  notice  of  abandonment  is  un- 
necessary occurs  where,  at  the  time  the  insured  elects  to  treat  the 
claim  as  one  of  constructive  total  loss,  there  is  no  possibility  of 
the  underwriter  deriving  any  advantage  from  such  notice,  either 
because  there  is  nothing  to  abandon  or  because  the  disposal  of  the 
property  was  determined  before  the  opportunity  to  give  notice 
occurred. 

It  is  necessary  to  make  an  abandonment  within  a  reasonable 
time  after  information  of  the  loss  and  after  the  commencement 
of  the  voyage  and  before  the  party  abandoning  has  information 
of  its  completion.  The  insured  should,  on  deciding  to  claim  for 
an  absolute  loss,  give  notice  of  his  intention  promptly  to  the 
underwriters  in  order  that  the  latter  may  be  given  the  oppor- 
tunity to  take  any  steps  which  they  may  think  proper  for  the 
recovery  of  the  property  or  for  the  realization  of  salvage  if  the 
property  is  recoverable.  No  specific  form  of  notice  of  abandon- 
ment is  required,  it  not  even  being  essential  that  such  notice  be 
in  writing,  though  it  is  both  customary  and  advisable  that  written 
notice  be  given. 

The  effect  of  an  acceptance  by  the  underwriters  of  an  aban- 


INSURANCE  253 

donment  is  equivalent  to  a  transfer  of  the  insured's  interest  to 
the  insurer,  with  all  chances  of  recovery  and  indemnity. 

Where  profits  are  valued  and  insured  by  a  contract  of  marine 
insurance,  a  loss  of  the  profits  is  presumed  from  a  loss  of  the 
property  out  of  which  they  were  expected  to  arise,  and  the 
valuation  of  the  property  fixes  their  amount. 

The  method  of  ascertaining  a  loss  under  an  open  policy  of 
marine  insurance  is  as  follows:  (i)  The  value  of  a  ship  is  its 
value  at  the  beginning  of  the  risk,  including  all  articles  or  charges 
which  add  to  its  permanent  value  or  which  are  necessary  to 
prepare  it  for  the  voyage  insured.  (2)  The  value  of  the  cargo 
is  its  actual  cost  to  the  insured  when  laden  on  board;  or,  where 
the  cost  cannot  be  ascertained,  its  market  value  at  the  time  and 
place  of  lading,  adding  the  charges  incurred  in  purchasing  and 
placing  it  on  board,  but  without  reference  to  any  losses  incurred 
in  raising  money  for  its  purchase,  or  to  any  drawback  on  its 
exportation,  or  to  the  fluctuations  of  the  market  at  the  port  of 
destination,  or  to  expenses  incurred  on  the  way  or  on  arrival. 
(3)  The  value  of  freight  is  the  gross  freight,  exclusive  of 
primage,  without  reference  to  the  cost  of  earning  it.  And  in 
each  case  the  cost  of  insurance  is  to  be  added  to  the  value  then 
estimated. 

Particular  Average. 

A  particular  average  on  goods  consists  either  in  a  deteriora- 
tion or  total  loss  of  part  of  the  subject  insured  by  the  operation 
of  the  perils  insured  against.  It  is  important  to  distinguish 
between  a  particular  average  and  a  salvage  loss  on  goods,  as 
some  confusion  has  occurred  in  the  use  of  these  terms. 

"A  salvage  loss  is  a  total  loss  diminished  by  salvage,  and 
takes  place  in  relation  to  goods,  where  there  is  either  an  absolute 
or  a  constructive  total  loss  of  the  subject  insured,  but  some 
remains  of  the  property  have  been  recovered  by  the  assured.  In 
that  case  the  claim  upon  the  underwriters  is  for  the  difTerence 
between  the  insured  value  and  the  net  proceeds,  and  the  latter  are 
computed  by  deducting  from  the  gross  proceeds  of  the  property 
saved  all  charges  incurred  in  realizing  the  salvage. 

Where  only  a  part  of  the  subject  insured  is  sold  short  of  its 
destination,  the  remainder  being  delivered  there,  the  claim, 
though  stated  in  practice  as  a  salvage  loss,  is  in  principle  one  for 
particular  average. 


254  INSURANCE 

Conclusion. 

The  details  of  the  adjustments  of  marine  losses  between  the 
insurers  and  the  insured  are  frequently  a  matter  of  great  com- 
plication and  are  generally  placed  in  the  hands  of  professional 
experts  called  average  adjusters.  The  adjustment  reached  by 
such  experts  is  usually  by  special  agreement,  made  the  basis  of 
an  amicable  settlement  among  the  different  interests,  and  lawsuits 
are  not  as  common  over  marine  adjustments  as  in  other  branches 
of  insurance. 

When  the  partially-damaged  ship  and  cargo  arrive,  the 
master  or  owner  advertises  for  bids  for  repairs.  Bids  are 
accepted,  the  survey  of  damage  is  made  and  contracts  for  rebuild- 
ing executed.  These,  with  the  bills  of  lading  or  invoices,  the 
freight  manifest,  the  charter  party,  the  policies  of  insurance  and 
any  other  proofs  of  loss,  furnish  the  adjuster  with  the  necessary 
material  for  making  up  his  accounts,  apportioning  the  loss 
according  to  the  respective  rights  of  the  different  interests. 

As  soon  as  a  loss  has  been  adjusted  and  paid  the  policy  of 
insurance  becomes  merged  in  such  adjustment,  and  thereafter 
the  insurers  cannot  avail  themselves  of  any  defense,  which  they 
might  have  done  under  the  policy  as  a  ground  for  opening  the 
adjustment.  Of  course,  if  there  has  been  any  fraud  practiced  in 
obtaining  the  adjustment,  redress  may  be  had. 

As  the  subject  of  marine  insurance  is  a  very  technical  one, 
it  has  been  thought  best,  in  a  book  of  this  character,  to  treat  the 
same  briefly  and  merely  outline  its  most  important  features. 


COMMON  CARRIERS. 

Definition  —  Classification  —  Liability  —  Connecting  Carriers  — 
Stoppage  in  Transit — Lien  for  Charges — Interstate  Tratis- 
portation — Railroad  Rate  Bill — Baggage. 

THE  public  interest  in  questions  concerning  the  rights,  duties 
and  liabilities  of  common  carriers  in  their  relation  to 
shippers  and  travelers,  and  their  governmental  regulation 
as  public  service  corporations,  renders  this  subject  one  of  timely 
and  practical  importance. 

A  carrier  has  been  judicially  defined  as  a  person  or  corpora- 
tion who  undertakes  to  transport  or  convey  goods,  property  or 
persons  from  one  place  to  another,  gratuitously  or  for  hire. 
There  are  two  classes  of  carriers,  private  or  special,  and  common 
or  public.  The  classification  of  carriers  is- important  because  it 
enters  largely  into  the  determination  of  the  legal  responsibility 
of  the  carrier.  The  class  among  carriers  to  which  a  particular 
carrier  is  to  be  assigned  depends  upon  the  nature  of  his  business, 
the  character  in  which  he  holds  himself  out  to  the  public,  the 
terms  of  his  contract  and  his  relations  generally  to  the  parties 
with  whom  he  deals  and  the  public.  The  above  classification 
includes  carriers  by  land  and  by  water,  as  well  as  carriers  of 
goods,  carriers  of  passengers  and  carriers  of  live  stock. 

The  carriage  by  one  of  the  goods  or  baggage  of  another  is 
what  is  known  in  law  as  a  bailment,  and  when  it  is  done  without 
compensation  to  the  carrier  belongs  to  that  class  of  bailments 
known  as  mandates.  When  the  carrier  is  paid  for  carrying 
goods  or  baggage,  such  carriage  of  goods  is  of  that  class  of 
bailments  known  as  hiring.  Private  carriers,  whether  for  or 
without  hire,  are  merely  bailees,  with  the  duties  and  liabilities  of 
such.  The  foundation  of  their  liability  is  negligence.  The 
liability  of  a  common  carrier  is  based  upon  reasons  of  public 
policy  and  not  upon  the  contract  of  bailment.  The  common 
carrier  of  goods  is  practically  the  insurer  of  the  safety  of  the 
goods.  The  liability  of  a  common  carrier  of  passengers  for  an 
injury  to  a  passenger  generally  depends  exclusively  upon  the 
question  of  negligence,  but  the  common  carrier  of  goods  is  held 
to  be  an  insurer  against  all  accidents  not  attributable  to  the  acts 
of  God  or  of  the  public  enemy. 


2s6  COMMON  CARRIERS 

A  private  carrier  is  one  who  agrees  to  transport  persons  or 
property  from  one  place  to  another  in  a  particular  instance  only; 
in  other  words,  one  who  does  not  make  such  services  a  regular 
vocation.  A  common  carrier,  on  the  other  hand,  holds  itself 
out  to  the  public  as  willing  to  carry  any  person  or  property 
indiscriminately.  A  private  carrier  for  hire  is  one  who,  without 
being  engaged  in  such  business  as  a  public  employment,  under- 
takes to  carry  and  deliver  the  goods  of  others  upon  particular 
occasions  for  hire  or  reward,  upon  such  terms  as  may  be  agreed 
upon.  All  persons  who  carry  under  a  special  contract,  as  the 
driver  of  a  stage-coach,  occasionally  taking  packages  to  carry  for 
compensation,  are  private  carriers.  Likewise  one  who  contracts 
to  cut  timber  and  transport  it  to  the  place  where  it  is  to  be 
delivered  and  used  does  not  incur  the  responsibility  of  a  common 
carrier,  but  is  only  liable  as  a  private  carrier  for  the  want  of 
ordinary  prudence,  care  and  skill.  A  common  carrier  may  by 
special  contract  limit  its  common  law  liability  and  thus  become  a 
private  carrier  for  hire  as  to  the  particular  goods  carried  under 
the  contract,  although  it  cannot  by  special  contract  create  an 
exemption  from  liability  for  actual  negligence  of  itself  or  its 
servants. 

There  are  five  essential  particulars  in  which  a  common  carrier 
differs  from  a  private  carrier.  In  the  first  place  a  common  carrier 
is  liable  for  all  loss  or  damage  of  property  carried  by  it  except 
where  the  loss  results  from  inevitable  accident  or  the  act  of  God, 
whereas  a  private  carrier  is  only  liable  for  bad  faith  or  ordinary 
negligence.  In  the  second  place  a  common  carrier  cannot  stipu- 
late against  liability  for  negligence,  whereas  a  private  carrier  may. 
The  third  distinction  resides  in  the  fact  that  a  common  carrier 
has  a  lien  on  the  goods  carried  for  its  charges,  *.  e.,  a  common 
carrier  may  retain  possession  of  the  goods  until  the  charges  have 
been  paid  or  sell  same  if  necessary  to  cover  costs  of  carrying, 
while  a  private  carrier  has  no  such  privilege.  Furthermore,  a 
common  carrier  may  be  sued  for  an  unreasonable  refusal  to  carry 
goods  offered  by  the  public,  but  a  private  carrier  may  haul  such 
goods  for  such  persons  as  he  prefers  without  any  liability  to 
carry  goods  offered  to  him.  The  fifth  difference  between  a 
common  and  a  private  carrier  is  the  fact  that  a  common  carrier 
is  required  to  receive  a  compensation  for  services  rendered, 
whereas  it  is  optional  with  a  private  carrier  whether  or  not  to 
receive  compensation. 

The  nature  and  extent  of  employment  and  business  in  which 
a  common  carrier  holds  forth  to  the  public  as  engaged,  furnish 


I 


COMMON  CARRIERS  257 

the  limits  of  the  rights,  obligations,  duties  ana  liabilities  of  such 
common  carrier.  A  common  carrier  may  be  a  carrier  of  either 
passengers  or  freight,  or  both.  A  common  carrier,  being  one  who 
transports  goods  for  hire  for  the  public  generally,  acquires  such 
a  special  property  in  the  goods  delivered  as  to  give  it  a  right  of 
action  against  any  person  who  deprives  it  of  possession,  or  who 
injures  the  goods.  By  reason  of  the  public  nature  of  the  employ- 
ment, the  responsibility  imposed  upon  a  common  carrier  by  law 
is  that  of  an  insurer  against  loss  or  injury  of  the  property  while 
in  its  custody  or  under  its  control,  or  until  delivery  to  the  con- 
signee or  owner.  A  common  carrier  is  not  liable  where  the  loss 
or  injury  resulted  from  the  inherent  nature  of  the  goods,  nor 
where  the  loss  or  injury  was  due  to  the  negligence  of  the  shipper, 
nor  where  the  loss  or  injury  resulted  from  delay  in  the  transmis- 
sion of  the  goods,  nor  where  the  loss  or  injury  was  caused  by 
the  exercise  of  public  authority. 

A  common  carrier  is  not  liable  for  refusing  to  carry  goods 
if  not  possessing  facilities  for  doing  so. 

Classification  of  Common  Carriers. 

An  express  company  which  undertakes  to  carry  goods  for 
hire  for  the  public  generally  is  a  common  carrier.  Local  express 
companies  which  carry  baggage  to  and  from  the  depots  of  the 
various  railroads  are  common  carriers  and  perform  their  duties 
under  the  responsibility  of  such. 

Railroad  companies  which  are  chartered  by  the  State  to 
carry  goods  and  passengers  for  hire  are  the  principal  class  of 
common  carriers.  Railroad  companies  in  their  capacity  of  com- 
mon carriers  of  passengers  incur  the  responsibility  of  a  common 
carrier  in  reg^ard  to  the  baggage  of  passengers.  Street  railway 
companies  as  common  carriers  of  passengers  for  hire,  having 
similar  rights  and  liabilities  as  railroad  companies,  are  required 
to  exercise  the  highest  degree  of  care,  skill  and  diligence  for  the 
safety  of  their  patrons,  and  are  liable  for  the  slightest  negligence 
causing  injury  or  damage  to  the  passengers.  A  transportation 
company  which  does  not  own  or  control  any  means  of  conveyance 
itself,  but  engages  in  the  business  of  transporting  goods  through 
the  agency  and  over  the  lines  of  another  carrier  of  its  own  selec- 
tion, is  a  common  carrier  subject  to  all  responsibilities  connected 
with  that  character.  Such  a  company  cannot  by  agreement 
obtain  exemption  from  liability  for  damages  to  goods  caused  by 
the  negligence  of  its  agents  or  sub-carriers. 

17 


2S8  COMMON  CARRIERS 

Owners  of  canal  boats  are  common  carriers  if  they  hold 
themselves  out  as  willing  to  transport  merchandise  for  any  one 
applying  to  them.  The  Courts  have  held  that  the  owner  of  a 
tugboat  engaged  in  towing  vessels  is  not  a  common  carrier,  and 
hence  not  liable  as  an  insurer.  Strictly  speaking,  the  owner  of  a 
tugboat  is  not  a  bailee,  for  the  property  towed  is  not  delivered  to 
him  nor  placed  within  his  exclusive  control.  The  Supreme  Court 
of  Pennsylvania  has  held,  however,  that  the  owner  of  a  tugboat 
incurred  the  responsibility  of  an  ordinary  bailee  for  hire.  A 
ferryman  who  transports  passengers  with  their  teams,  vehicles 
or  other  property,  but  who  carry  such  property,  only  with  the 
owner  or  custodian  thereof,  is  not  under  the  obligation  of  a 
common  carrier.  If  ferrymen  combine  with  the  ferry  business 
the  business  of  carrying  merchandise  without  the  presence  of  the 
owner,  they  become  common  carriers,  and  hence  must  exercise 
extraordinary  care  in  transportation. 

The  authorities  are  unsettled  as  to  whether  or  not  hackmen, 
who  transport  passengers  for  hire,  are  common  carriers.  Having 
no  special  route  or  scheduled  time  for  making  trips,  the  weight 
of  authority  is  to  the  effect  that  a  hackman  is  not  under  the 
obligation  of  a  common  carrier. 

It  is  well  settled,  however,  that  the  proprietor  of  a  line  of 
omnibuses  engaged  in  carrying  passengers  and  baggage  between 
the  hotels  and  depots  of  a  city  is  a  common  carrier.  Nothing 
will  excuse  omnibus  proprietors  for  the  loss  or  injury  to  baggage 
except  inevitable  accident.  They  would  not,  however,  be  liable 
for  the  loss  of  a  large  sum  of  money  contained  in  a  trunk  in 
excess  of  an  amount  ordinarily  carried  by  a  traveler. 

Palace  and  sleeping  car  companies  are  not  liable  as  common 
carriers,  the  company  only  being  bound  to  exercise  reasonable 
care  in  looking  after  the  person  and  property  of  passengers. 
Such  companies  have  been  held  liable  for  the  theft  of  a  pocket- 
book  or  jewelry  from  a  passenger,  providing  they  have  been 
negligent  in  making  proper  precautions  against  such  theft.  It 
has  been  held  that  a  sleeping  car  company  is  not  liable  for  sick- 
ness contracted  by  an  occupant  of  an  upper  berth  from  water 
dripping  from  an  open  ventilating  window  in  the  night,  where 
such  occupant  failed  to  request  an  attendant  to  close  it,  or  where 
he  was  in  a  position  to  close  it  himself  and  did  not.  The  company 
is  liable  in  damages  for  breach  of  contract  to  reserve  a  berth  for 
a  passenger  or  to  furnish  him  with  a  berth  in  accordance  with  a 
ticket  paid  for  by  him. 

Truckmen,  draymen  and  common  porters  transporting  goods 


COMMON  CARRIERS    '  259 

from  one  point  to  another  for  hire  are  common  carriers.  Steam- 
boat companies  carrying  passengers  and  freight  are  common 
carriers,  but  ocean  steamship  companies  are  not  responsible  as  a 
common  carrier  for  the  baggage  of  a  passenger  kept  by  him  in 
his  own  stateroom.  A  canal  company,  which  for  the  payment  of 
a  certain  toll  allows  boatmen  to  navigate  the  canal,  is  not  a 
common  carrier,  but  is  bound  to  see  that  the  canal  may  be  navi- 
gated without  danger.  Warehousemen  and  wharfingers,  who 
merely  receive  and  store  merchandise,  or  ship  same  to  their  desti- 
nation for  hire,  are  not  common  carriers,  but  are  only  liable  for 
loss  arising  from  the  negligence  of  themselves  or  agents. 

Postmasters  and  mail  carriers  are  not  liable  as  common  car- 
riers for  the  safety  of  such  property  as  may  be  sent  through  the 
mails,  or  for  the  embezzlement  of  clerks  or  deputies  employed  by 
them.  The  postal  service,  including  the  money-order  system,  is 
a  department  of  the  United  States  Government,  in  charge  of 
public  officers  or  agents,  who  enter  into  no  contracts  with  indi- 
viduals and  receive  no  hire  from  them.  Such  officers  are  liable  to 
the  government  for  the  proper  discharge  of  the  duties  imposed 
upon  them  by  law.  A  postmaster  is  liable  to  individuals  for 
money  or  property  stolen  or  lost  from  his  office  through  his 
negligence,  or  any  wrongful  act. 

Whether  or  not  telegraph  companies  are  common  carriers 
is  a  question  upon  which  the  authorities  differ.  The  transmission 
of  messages  is  necessarily  subject  to  the  risk  of  mistake  and 
interruption.  A  telegraph  company  has  not  the  actual  immediate 
custody  of  the  messages  as  the  common  carrier  has  of  the  mer- 
chandise it  carries,  and  should,  therefore,  not  be  under  the  same 
obligations  as  a  common  carrier.  On  the  other  hand,  it  is  argued 
that  there  is  no  difference,  in  the  general  nature  of  the  legal 
obligation  of  the  contract,  between  carrying  a  message  along  a 
wire  and  carrying  a  package  along  a  certain  route.  In  view  of 
the  deep  interest  which  the  public  has  in  this  line  of  business,  and 
the  necessity  for  the  prompt  and  accurate  transmission  of  mes- 
sages, the  weight  of  authority  has  held  that  a  telegraph  company 
is  a  common  carrier.  In  so  holding  the  Courts  have  allowed 
telegraph  companies  to  provide  against  such  risks  as  arise  out  of 
atmospheric  influences  and  kindred  causes. 

Telephone  companies,  however,  are  not  common  carriers,  as 
they  do  not  transmit  messages,  but  merely  furnish  subscribers 
with  the  means  of  transmitting  their  own  messages.  The  law 
requires  telephone,  the  same  as  telegraph  companies,  to  furnish 
equal  facilities  to  all.    A  telephone  company  may  be  compelled 


26o  COMMON  CARRIERS 

by  mandamus  to  furnish  service  to  any  one  offering  to  comply 
with  its  regulations. 

If  a  railroad  undertakes  to  transport  a  train  of  cars  owned 
by  a  circus  or  menagerie  company  and  loaded  with  wild  animals 
it  may  make  a  special  contract  exempting  it  from  liability  as  a 
common  carrier.  Similarly  a  railroad  company  which  does  not 
hold  itself  out  as  a  common  carrier  of  dogs,  but  allows  its 
baggagemaster  to  take  charge  of  them  for  a  fee  retained  by  him 
as  a  matter  of  accommodation  to  the  passenger,  is  not  liable  for 
harm  done  to  the  dogs.  If  the  baggagemaster  delivers  the  dogs 
to  the  wrong  person  the  owner  may  bring  suit  against  the  railroad 
company. 

Elevators  in  Office  Buildings. 

There  is  no  distinction,  so  far  as  legal  liability  is  concerned, 
between  vertical  transportation  and  horizontal  transportation. 
The  owner  of  an  office  building  operating  elevators  therein 
receives  no  compensation  for  carrying  passengers  (other  than 
the  indirect  compensation  in  the  nature  of  rental  paid  by  the 
tenants),  and  on  this  account  does  not  come  within  the  definition 
of  a  common  carrier.  The  better  authority  is  to  the  effect  that, 
although  the  operator  of  an  elevator  is  not  technically  a  common 
carrier,  nevertheless  for  reasons  of  public  policy  he  is  held  to  a 
similar  liability. 

Telegraph  messenger  companies  engaging  in  the  business  of 
delivering  parcels  by  its  messengers  are  liable  for  any  loss  suf- 
fered from  the  messenger's  failure  to  obey  instructions,  or  the 
negligence  of  such  messenger,  such  a  company  being  regarded  as 
a  common  carrier. 

The  owners  of  grain  elevators  occupy  a  relation  to  the  public 
similar  to  common  carriers.  They  must  receive  and  store  grain 
for  lawful  prices  for  any  one  applying  to  them.  They  may  be 
controlled  by  public  legislation  for  the  common  good,  and  a 
maximum  rate  of  charge  may  be  established  by  law. 

The  duty  is  imposed  by  law  upon  every  common  carrier  to 
receive  and  carry  all  goods  offered  to  it  for  transportation,  within 
the  line  of  its  business,  upon  being  paid  a  reasonable  compensa- 
tion. Damages  may  be  recovered  against  a  railroad  company 
refusing  to  carry  goods  through  ill-will  or  disregard  of  the  rights 
of  the  shipper. 

A  common  carrier  is  prohibited  by  law  from  discriminating 
between  parties  who  offer  goods  for  transportation.    A  common 


COMMON  CARRIERS  a6l 

carrier  may,  however,  charge  lower  rates  for  larger  contracts, 
but  will  be  liable  in  damages  for  discriminating  between  indi- 
viduals on  account  of  personality  or  on  account  of  the  particular 
class  of  goods  offered  for  carriage. 

A  railroad  company,  as  well  as  other  classes  of  common 
carriers,  owe  a  duty  to  the  public  not  to  charge  exorbitant  prices. 
A  breach  of  this  duty  will  warrant  the  law's  interference,  the 
State  having  the  power  to  regulate  the  rates  which  a  common 
carrier  may  charge.  This  right  of  regulation  was  exercised  by 
the  Legislature  of  Pennsylvania  by  the  enactment  of  the  two-cent 
rate  bill,  which  has  but  recently  been  declared  invalid  by  the 
Supreme  Court.  The  right  of  the  Legislature  to  regulate  rates 
was  not  questioned,  the  law  being  declared  invalid  on  the  ground 
that  it  was  confiscatory  as  applied  to  the  Pennsylvania  Railroad 
Company. 

A  common  carrier  of  goods  is  not  under  obligation  to  accept 
and  carry  all  personal  property  that  may  be  offered  to  it,  although 
as  a  general  rule  this  obligation  holds  good.  Its  duty,  strictly 
speaking,  is  limited  to  carrying  property  of  such  kinds,  to  and 
from  such  places,  as  it  publicly  professes  and  undertakes,  or  is 
accustomed  to  carry  and  has  facilities  for  carrying.  It  may  make 
reasonable  rules  and  regulations  for  the  reception,  carriage  and 
delivery  of  freight,  including  the  classification  and  suitable  prepa- 
ration of  articles  for  shipment.  A  common  carrier  may  also 
require  prepayment  of  freight  charges  from  any  shipper,  although 
this  is  seldom  done. 

Commencement  of  Liability. 

The  Supreme  Court  of  Pennsylvania  has  laid  it  down  as  a 
general  rule  that  the  responsibility  of  a  common  carrier  for  goods 
transmitted  to  it  shall  commence  when  there  has  been  a  complete 
delivery  to  it  for  the  purpose  of  immediate  transportation.  Where 
goods  are  delivered  to  a  common  carrier  to  await  further  orders 
from  the  shipper  before  shipment,  the  common  carrier,  while 
they  are  in  his  custody,  is  only  liable  as  a  warehouseman.  A 
complete  delivery  does  not  merely  include  a  handing  over  of  the 
goods,  but  also  their  acceptance  by  the  common  carrier,  so  as  to 
place  the  exclusive  duty  of  seeing  to  their  safety  upon  the  com- 
mon carrier.  A  railroad  company  is  liable  for  the  loss  of  goods 
by  fire,  which  were  placed  by  it  on  a  wharf  with  notice  to  a 
steamboat  company  to  remove  them,  and  the  bill  of  lading  pro- 
vided that  the  loss  should  fall  upon  the  carrier  alone  which  had 
actual  custody  at  the  time  the  loss  occurred.     Permitting  the 


262  COMMON  CARRIERS 

shipper  to  put  his  cattle  in  the  station  yard,  no  bill  of  lading  being 
given  by  the  station  agent,  does  not  constitute  such  delivery  as  to 
render  the  company  liable  for  cattle  escaping. 

A  special  place  for  receiving  freight  may  be  fixed  by  custom, 
and  delivery  to  such  place  is  sufficient  to  charge  the  carrier  with 
liability.  Actual  notice  of  the  deposit  of  goods  for  shipment  at 
such  places  must  be  given  to  the  common  carrier,  unless  there  is 
an  agreement  or  usage  whereby  goods  deposited  at  a  certain 
place  are  to  be  taken  charge  of  by  the  carrier  without  special 
notice  of  such  deposit.  It  is  not  necessary  for  the  carrier  to  give 
the  shipper  a  bill  of  lading  to  constitute  a  complete  delivery, 
although  this  is  frequently  done. 

Termination  of  Liability. 

The  extraordinary  liability  of  a  common  carrier  ends  when 
the  goods  are  delivered  to  the  consignee.  It  is  very  important 
to  determine  just  when  and  under  what  circumstances  the  goods 
are  delivered  to  the  consignee. 

The  carrier's  liability  cannot  end  until  that  of  the  owner, 
consignee  or  warehouseman  begins.  The  liability  of  the  common 
carrier  terminates  when  its  liability  as  warehouseman  begins.  As 
soon  as  the  goods  are  safely  conveyed  to  the  point  of  destination, 
and  the  carrier  cannot  deliver  the  goods  on  account  of  the  death, 
absence  or  refusal  of  the  consignee  to  accept  them,  the  carrier  is 
discharged  from  further  responsibility  by  storing  the  goods  in 
its  freight  depot.  If  the  goods  arrive  safely  at  the  termination 
of  the  journey,  and  notice  is  sent  to  the  consignee  that  the  goods 
are  there  subject  to  his  order,  the  liability  of  the  carrier  is  at  an 
end.  Payment  of  the  freight  charges  by  the  consignee  after 
notice  of  arrival  of  the  goods  amounts  to  a  delivery,  and  throws 
the  risk  of  loss  upon  the  consignee. 

Connecting  Carriers. 

The  Courts  are  very  rigorous  in  the  enforcement  of  the  law 
which  requires  the  common  carrier  to  make  delivery  of  the  goods 
transported  to  the  proper  person  and  will  accept  no  excuse  by  a 
common  carrier  for  a  wrong  delivery  except  same  result  from 
fault  of  the  shipper.  A  delivery  to  the  consignee's  agent  or  to  a 
third  party  under  instructions  from  such  agent  has  been  held  to 
be  a  good  delivery.  It  has  also  been  held  that  delivery  of  a  wife's 
goods  to  a  husband  is  good,  the  presumption  being  that  the  hus- 
band is  the  dulv  authorized  agent  of  the  wife.    Similarly,  delivery 


COMMON  CARRIERS  263 

of  a  money  package  addressed  to  the  cashier  of  a  bank  has  been 
held  good  if  delivered  to  the  receiving  teller. 

There  are  four  different  ways  in  which  delivery  to  the  con- 
signee may  be  made.  First,  by  personal  delivery  by  the  carrier 
to  the  consignee,  which  is  required  in  all  cases  where  the  goods 
are  carried  in  wagons.  For  example,  express  companies  are 
under  legal  obligation  to  make  personal  delivery.  Second,  com- 
mon carriers  by  water  are  only  required  to  notify  the  consignee 
of  the  arrival  of  the  goods  and  afford  the  consignee  a  reasonable 
opportunity  for  removal,  personal  delivery  not  being  required  of 
this  class  of  carriers.  Third,  railroads  are  not  required  to  make 
personal  delivery  or  notify  the  consignee.  However,  as  their 
liability  as  warehousemen  begins  when  the  goods  have  reached 
their  destination,  the  custom  has  been  adopted  of  notifying  the 
consignee.  Fourth,  the  liability  of  a  common  carrier  of  baggage 
does  not  end  until  the  owner  has  been  given  a  reasonable  oppor- 
tunity to  remove  the  same,  after  it  has  been  unloaded  and  placed 
in  a  position  by  the  carrier  for  delivery. 

Let  us  next  consider  such  excuses  as  will  exempt  a  common 
carrier  from  liability  on  account  of  non-delivery  of  the  goods  to 
the  consignee. 

If  in  the  course  of  transportation  or  before  final  delivery, 
the  common  carrier  ascertains  that  some  one  other  than  the 
consignor  is  the  real  owner  of  the  goods,  and  such  true  owner 
demands  them,  the  common  carrier  is  discharged  from  further 
liability  upon  delivery  of  the  goods  to  the  real  owner.  In  other 
words  the  common  carrier  may  justify  failure  to  deliver  to  the 
consignee  by  proof  of  demand  and  delivery  to  one  having  a 
paramount  title. 

"  Stoppage  in  Transitu." 

If  a  consignor  has  not  received  payment  for  the  goods 
shipped,  and  ascertains  that  the  consignee  has  become  insolvent, 
he  has  a  right  to  reclaim  the  goods  in  the  custody  of  the  common 
carrier  at  any  time  before  they  have  arrived  at  their  destination. 
When  the  consignor  has  exercised  this  right  and  possession  of 
the  goods  is  given  him,  the  common  carrier  is  excused  for  failure 
to  deliver  the  goods  to  the  consignee.  In  such  case  the  goods  are 
not  liable  for  freight  due  from  the  consignee.  It  may  be  stated 
as  a  general  rule  that  where  a  common  carrier  receives  goods 
for  transportation  and  delivery  to  the  consignee,  the  consignor 
(shipper)  parts  with  the  goods  and  all  control  over  them.    De- 


264  COMMON  CARRIERS 

livery  to  the  carrier  is  delivery  to  the  consignee's  agent,  and  the 
consignor  cannot  thereafter  prevent  their  delivery  to  the  con- 
signee unless  upon  such  facts  as  will  justify  the  exercise  of  the 
right  of  stoppage  in  transitu.  If  the  goods  have  reached  their 
ultimate  destination,  before  the  consignor  makes  claim  to  the 
common  carrier  therefor,  title  passes  absolutely  to  the  consignee 
and  the  right  of  stoppage  in  transitu  is  lost.  To  justify  the 
exercise  of  this  right,  it  must  appear  that  the  consignee  has 
become  insolvent  and  that  the  consignor  would  in  all  probability 
be  unable  to  collect  the  price  of  his  shipment. 

If  delivery  of  the  goods  by  the  consignor  to  the  common 
carrier  is  qualified  or  conditional,  that  is  to  say,  if  the  shipper 
notifies  the  common  carrier  not  to  deliver  the  goods  to  the  con- 
signees until  he  presents  the  bill  of  lading  and  a  draft  upon  him, 
delivery  to  the  carrier  is  not  delivery  to  the  consignee,  who,  unless 
he  complies  with  the  conditions,  acquires  no  title  or  right  to  the 
property.  The  consignor  has  the  privilege  under  such  circum- 
stances to  change  the  consignee  while  the  goods  are  in  transit, 
and  has  also  the  right  to  change  their  destination  after  the  goods 
have  passed  into  the  hands  of  a  connecting  carrier  by  taking  a 
new  bill  of  lading. 

The  third  excuse  for  the  non-delivery  of  goods  to  the  con- 
signee by  the  common  carrier  is  proof  of  their  loss  or  injury  by 
an  act  of  God,  by  act  of  the  public  enemy,  by  the  inherent  nature 
of  the  goods,  by  act  of  the  shipper  or  his  agent,  and  by  public 
authority.    Certain  of  these  conditions  will  be  discussed  later  on. 

Bills  of  Lading. 

By  the  act  of  September  24,  1866,  it  is  provided  in  Pennsyl- 
vania that  bills  of  lading  are  negotiable  instruments.  A  bill  of 
lading  is  a  receipt  for  the  goods  carried,  given  by  the  common 
carrier,  and  when  properly  indorsed  and  delivered  operates  as  a 
transfer  and  delivery  of  the  property  itself,  and  the  consignor 
loses  the  control  of  the  goods  by  such  transfer.  A  common 
carrier  is  not  liable  for  delivery  otherwise  than  in  accordance  with 
the  bill  of  lading,  or  to  any  one  not  authorized  to  receive  the 
goods,  even  though  he  be  the  consignee. 

Any  bill  of  lading  which  shall  have  the  words  "not  nego- 
tiable" plainly  written  or  stamped  on  the  face  thereof  shall  not  be 
negotiable. 

If  goods  are  delivered  to  a  common  carrier  it  will  not  operate 
as  a  delivery  to  the  consignee,  where  by  taking  the  bill  of  lading 


COMMON  CARRIERS  265 

to  his  own  order  the  shipper  reserves  to  himself  the  power  of 
disposing  of  the  property.  It  has  been  held  that  if  a  bill  of  lading 
is  fraudulently  issued,  a  bank  cashing  a  draft  with  the  bill  of  lad- 
ing attached  acquires  a  good  title  to  the  property  in  question.  A 
bill  of  lading,  although  negotiable  in  the  sense  that  it  may  be 
transferred  by  indorsement  and  delivery,  is  not  negotiable  in  the 
sense  that  a  bill  of  exchange  or  promissory  note  is  negotiable.  In 
the  case  of  a  bill  of  lading  the  transferee  only  takes  such  rights  as 
the  transferor  had,  whereas  an  innocent  purchaser  for  value  of 
an  ordinary  negotiable  instrument  acquires  an  absolute  and 
indefeasible  title  thereto. 

If  the  common  carrier  has  delivered  the  goods  to  a  wrong 
party,  it  is  no  excuse  that  the  indorsee  of  the  bill  of  lading  was 
unknown  to  the  carrier,  and  notice  of  the  arrival  of  the  goods 
could  not  be  given. 

It  is  the  duty  of  the  common  carrier  to  demand  production 
of  the  bill  of  lading  by  the  consignee  before  delivering  possession 
of  the  goods,  for  the  carrier  will  be  liable  to  the  holder  of  the 
bill  of  lading  if  it  delivers  the  goods  to  the  consignee  after  he 
has  assigned  the  bill  of  lading. 

The  transfer  of  a  bill  of  lading  before  the  right  of  stoppage 
in  transitu  is  exercised  will  defeat  the  right,  the  assignment  of 
the  bill  of  lading  transferring  the  title  to  the  property.  This  rule 
is  based  upon  the  well-established  doctrine  of  law  that  whenever 
one  of  two  innocent  parties  must  suffer  by  the  act  of  a  third,  he 
who  has  enabled  the  third  person  to  do  or  occasion  the  injury 
must  suffer  the  loss. 

If  the  goods  carried  are  consigned  by  the  shipper  to  the 
purchaser  upon  payment  of  a  draft  attached  to  the  bill  of  lading 
for  the  purchase  price  of  the  goods,  no  title  to  the  goods  will 
pass  to  the  purchaser,  and  the  purchaser  will  not  be  entitled  to 
a  delivery  of  the  property  until  the  draft  accompanying  the  bill 
of  lading  has  been  accepted  and  paid. 

If  bills  of  lading  have  been  issued  in  sets,  providing  that 
when  delivery  has  been  made  on  one  the  others  are  to  be  void,  a 
delivery  by  a  common  carrier  upon  presentation  of  a  duplicate 
bill  properly  indorsed  discharges  the  common  carrier  from  any 
further  liability. 

Originally  bills  of  lading  were  transferable  by  delivery  only, 
but  to-day,  unless  a  bill  of  lading  directs  delivery  of  the  goods  to 
the  holder,  the  common  carrier  would  be  responsible  if  it  deliv- 
ered the  goods  to  any  one  but  the  oripfinal  holder  of  the  bill  of 
lading,  unless  the  same   was  properly   indorsed.     Delivery  of 


266  COMMON  CARRIERS 

goods  to  a  third  person  by  a  common  carrier  on  an  unindorsed 
bill  of  lading  is  always  at  the  risk  of  the  carrier. 

Delivery  "C.  0.  D." 

When  a  common  carrier  accepts  goods  marked  "C.  O.  D." 
it  undertakes  not  to  deliver  them  unless  the  condition  of  payment 
is  complied  with.  When  a  bill  of  lading  requires  the  carrier  to 
collect  charges  upon  the  goods  on  delivery,  if  the  carrier  delivers 
the  goods  without  collecting  the  sum  due,  the  carrier  becomes 
liable  for  the  debt.  If  the  common  carrier  accepts  the  consignee's 
check,  payable  to  the  order  of  the  consignor,  for  the  amount  to 
be  collected,  which  is  accepted  by  the  consignor,  the  common 
carrier  is  relieved  from  all  further  responsibility,  even  though 
the  drawer  had  no  funds  in  bank  when  the  check  was  drawn.  If 
a  common  carrier  has  delivered  a  package  marked  "C.  O.  D."  to 
the  consignee,  and  received  payment,  and  the  transaction  was 
fraudulent  and  the  package  worthless,  the  consignee  may  reclaim 
his  money  at  any  time  before  the  common  carrier  has  paid  the 
money  to  the  consignor  guilty  of  the  fraud.  A  consignee  has 
the  right  to  inspect  a  package  or  any  goods  prior  to  paying 
collection  charges. 

It  sometimes  happens  that  goods  in  the  possession  of  a 
common  carrier  become  mixed  or  confused.  The  consignee  is 
entitled  to  the  delivery  of  the  identical  goods  shipped  to  him,  and 
if  the  confusion  of  goods  arises  through  mistake  the  common 
carrier  is  liable  for  damage. 

Common  Carrier's  Liability  for  Damages. 

We  have  heretofore  mentioned  the  fact  that  common  carriers 
are  liable  for  loss  or  damage  to  goods  or  property  carried  by 
them  in  two  capacities — (i)  as  insurers,  and  (2)  as  bailees  for 
hire.  To  exempt  itself  for  loss  of  goods  received  for  transporta- 
tion the  common  carrier  must  show  that  the  loss  resulted  from 
what  is  known  as  an  "act  of  God,"  such  as  an  unusual  snowstorm 
or  an  extraordinary  flood.  A  loss  or  injury  is  not  attributable 
to  an  act  of  God  where  it  is  caused  by  a  landslide  caused  by  a 
rain  of  not  extraordinary  violence  or  the  falling  of  a  sign  in  an 
ordinary  windstorm.  Damage  caused  by  an  earthquake  is  a 
good  illustration  of  the  exception  which  will  relieve  a  common 
carrier  from  liability.  It  has  been  held  that  to  render  a  common 
carrier  liable  for  damages  for  the  destruction  of  goods  by  freezing 
while  in  transit,  under  a  bill  of  lading  exempting-  it  from  damages 


COMMON  CARRIERS  267 

for  freezing,  it  must  not  only  be  guilty  of  unreasonably  delaying 
transportation,  but  the  goods  must  have  been  frozen  during  the 
delay.  It  will  be  observed,  therefore,  that  an  act  of  God  causing 
injury  must  be  such  an  act  as  could  not  be  foreseen  or  guarded 
against  by  human  foresight  or  prudence.  Such  an  act  of  God,  in 
order  to  exempt  a  common  carrier  from  responsibility,  must  be 
the  immediate  and  proximate  cause  of  the  loss. 

Loss  or  injury  caused  by  the  act  of  a  public  enemy  will  not 
render  a  common  carrier  liable.  Thieves,  rioters  or  irresistible 
mobs  have  been  held  not  to  be  public  enemies,  but  a  pirate  is 
regarded  as  such. 

A  common  carrier  is  not  liable  for  non-delivery  of  goods 
taken  out  of  its  possession  under  a  valid  legal  process,  but  the 
common  carrier  must  promptly  give  notice  to  the  owner  of  such 
legal  seizure. 

A  creditor  of  the  shipper  may  attach  property  in  the  depot 
or  yard  of  the  common  carrier  or  goods  in  actual  transit  at  the 
time  of  garnishment.  A  common  carrier  cannot  be  held  as 
garnishee  for  property  which  is  beyond  the  territorial  limits  of 
the  jurisdiction  of  the  Court  issuing  the  process.  A  common 
carrier  would  be  liable,  however,  for  the  value  of  fish  shipped 
over  its  line  which  were  seized  by  a  game  warden  on  the  ground 
that  the  fish  were  illegally  caught,  where  such  a  warden  had 
neither  legal  nor  apparent  legal  right  to  seize  the  same.  To 
excuse  the  common  carrier  it  must  show  that  the  property  was 
seized  under  valid  legal  process. 

The  law  imposes  a  duty  on  every  common  carrier  of  goods 
to  adopt  all  reasonable  means  of  lessening  the  damage  to  goods 
which  have  become  injured  while  in  transit.  Thus,  if  packages 
of  fur  become  wet,  the  common  carrier  must  open  them  and  let 
them  dry.  Where,  however,  an  express  company  is  not  advised 
that  a  package  given  it  for  transportation  contained  gold  it  is  not 
liable  for  not  searching  the  ruins  of  a  fire  to  recover  the  property. 

A  common  carrier  is  not  liable  for  losses  resulting  from  the 
inherent  nature  of  the  goods.  "Inherent  nature  of  goods"  has 
been  held  to  mean  that  the  loss  occurs  as  a  result  of  a  vice,  defect 
or  infirmity  in  the  goods,  as,  for  example,  where  fruit  decays  or 
liquids  evaporate.  A  common  carrier  has  been  held  not  to  be 
liable  for  loss  due  to  the  bursting  of  a  hogshead  of  molasses  by 
reason  of  fermentation,  which  results  from  the  operation  of 
natural  laws  against  which  a  common  carrier  does  not  insure. 


268  COMMON  CARRIERS 

Liability  as  Bailee. 

We  have  heretofore  discussed  the  common  carrier's  liability 
as  an  insurer.  We  will  next  inquire  under  what  circumstances  a 
common  carrier  is  liable  as  a  bailee. 

If  goods  are  delivered  to  a  common  carrier  with  instructions 
to  await  further  orders  from  the  shipper  before  transporting 
same,  the  common  carrier  is  only  responsible  as  a  warehouse- 
man, while  the  goods  are  thus  in  its  custody.  As  such,  the 
common  carrier  is  not  an  insurer  of  the  safety  of  the  goods,  but 
is  only  liable  in  case  of  gross  negligence.  In  other  words,  as  a 
warehouseman,  a  common  carrier  is  only  bound  to  exercise  the 
ordinary  care  and  prudence  which  is  required  of  a  bailee  of  any 
property  for  hire. 

Where  goods  have  been  transported  to  their  proper  destina- 
tion, and  the  consignee  notified  of  their  arrival,  the  liability  of  a 
common  carrier  as  an  insurer  ceases  and  its  liability  as  a  bailee 
of  the  goods  commences.  In  such  cases  the  carrier  is  responsible 
for  the  manner  in  which  it  keeps  the  goods,  but  it  is  not 
responsible  absolutely  for  their  safe  delivery. 

Where  goods  pass  over  several  connecting  lines  the  rule  that 
the  liability  of  the  common  carrier  ends  when  it  has  deposited 
the  goods  in  a  warehouse  at  the  connecting  point  does  not  apply. 
The  liability  of  each  carrier  in  such  case  continues  as  an  insurer 
until  it  parts  with  the  possession  and  control  of  the  goods  by 
delivering  them  to  the  succeeding  carrier.  If  the  connecting 
carrier  refuses  to  receive  the  goods  within  a  reasonable  time  the 
carrier  must  immediately  notify  the  consignee. 

When  the  goods  have  arrived  at  their  destination  it  is  the 
duty  of  the  common  carrier,  as  bailee  thereof  (warehouseman), 
to  store  them  safely,  and  it  is  responsible  for  the  ordinary  care 
and  attention  of  its  servants  and  agents  in  caring  for  them,  so 
that  they  may  be  delivered  whenever  called  for.  The  stipulation 
in  the  bill  of  lading  that  property  not  removed  by  the  party 
entitled  to  receive  it  within  twenty-four  hours  after  its  arrival 
at  destination  shall  be  at  the  sole  risk  of  the  owner,  does  not 
relieve  the  company  from  liability  for  the  loss  of  the  goods,  owing 
to  its  failure  to  exercise  the  care  required  of  a  warehouseman. 

A  common  carrier  would  be  liable  as  a  bailee  for  failure  to 
provide  suitable  places  for  feeding  and  watering  live  animals 
carried  by  it.  Unless  by  special  contract  a  common  carrier  agrees 
to  transport  and  deliver  goods  within  a  prescribed  time,  it  is  not 
liable  for  delay  in  delivering  the  goods,  unless  such  delay  be 
beyond  a  reasonable  time.    Low  water  in  a  canal,  or  the  freezing 


COMMON  CARRIERS  269 

of  a  river  might  have  caused  delay,  for  which  the  carrier  would 
not  be  responsible. 

Contracts  Limiting  Liability. 

It  may  be  laid  down  as  a  settled  rule  of  law  that  a  common 
carrier  may  by  contract  limit  its  liability  in  the  event  of  loss,  to 
that  of  an  ordinary  bailee  for  hire,  but  a  common  carrier  cannot 
by  contract  release  itself  from  liability  for  negligence.  These 
contracts  limiting  liability  usually  provide  that  the  common  car- 
rier shall  not  be  responsible,  beyond  a  certain  sum  named,  unless 
the  value  of  the  goods  be  declared  beforehand ;  or  that  the  com- 
mon carrier  shall  not  be  liable  at  all  unless  a  claim  is  presented 
within  a  certain  time,  or  in  a  certain  manner.  As  such  contracts 
affect  the  interest  of  the  public  in  general,  let  us  consider  how 
they  are  construed  by  the  Courts. 

It  can  readily  be  seen  that  the  public  would  be  at  the  mercy 
of  common  carriers,  if  they  could  by  special  contract  free  them- 
selves from  their  common  law  liability.  Hence  the  Courts  forbid 
common  carriers  from  making  a  particular  class  of  contracts.  It 
is  well  known  that  express  companies  make  contracts  limiting 
their  liability  to  fifty  dollars  for  goods  which  are  shipped  by 
them,  unless  the  value  of  such  goods  has  been  stated  when  they 
are  left  for  shipment.    The  law  will  sanction  such  a  contract. 

A  common  carrier  may,  by  special  contract,  release  itself 
from  liability  for  losses  caused  by  inevitable  accidents,  such  as 
fire,  or  perils  of  navigation.  In  a  case  recently  decided,  a  bill  of 
lading  provided  that  goods  should  be  delivered  to  successive 
carriers,  and  that  no  carrier  should  be  liable  for  loss  or  damage 
after  said  goods  were  ready  for  delivery  to  the  next  carrier,  and 
a  railroad  company  transported  the  goods  to  a  seaport  and  de- 
posited them  in  its  warehouse  ready  for  shipment  when  the  boats 
of  the  connecting  carrier  should  arrive ;  the  Court  held  that  the 
railroad  company  was  not  liable  for  the  loss  of  the  goods  by  fire 
while  awaiting  transportation,  the  fire  not  being  caused  by  the 
negligence  of  the  railroad  company. 

By  Public  Notices. 

A  common  carrier  may,  by  publicly  posting  a  general  notice, 
require  all  shippers  to  state  the  nature  and  value  of  the  property 
to  be  shipped,  and  the  carrier  will  be  absolved  from  the  conse- 
quences of  a  loss  beyond  the  apparent  value  of  such  property. 
A  common  carrier  may  also  limit  its  liability  by  public  notice  of 


270  COMMON  CARRIERS 

a  reasonable  rule  or  regulation  as  to  the  manner  of  entry  or 
consignment  of  the  goods,  the  statement  of  their  value  and  char- 
acter, and  the  carrier's  charges.  If  a  common  carrier  relies  on 
a  mere  notice  or  advertisement  as  a  limitation  of  its  liability,  the 
language  of  the  publication  must  be  plain,  explicit  and  unam- 
biguous. The  shipper  of  goods,  if  given  reasonable  opportunity, 
must  inform  himself  of  all  rules  and  regulations  designed  to 
insure  good  faith  and  fair  dealing,  and  hence  a  general  notice 
publicly  posted  will  discharge  a  common  carrier,  even  though 
the  shipper  had  no  knowledge  of  such  regulation.  New  York  is 
the  only  State,  to  the  writer's  knowledge,  where  this  rule  of  law 
does  not  exist. 

The  consignor,  upon  delivering  goods  to  a  common  carrier 
for  transportation,  receives  a  bill  of  lading  which  contains  the 
terms  and  conditions  upon  which  the  merchandise  is  to  be  carried. 
The  consignor  is  presumed  to  assent  to  the  bill  of  lading  when 
he  accepts  it. 

Contracts  which  are  to  be  partly  performed  in  the  State 
where  they  are  made  and  entered  into,  are  governed  by  the  laws 
of  such  State,  although  they  are  to  be  performed  partly  in  another 
State.  When,  however,  a  contract  is  made  in  one  country  or 
State  to  be  wholly  performed  in  another,  its  validity  is  to  be 
determined  by  the  law  of  the  place  of  performance.  This  rule 
was  applied  in  a  suit  brought  in  Pennsylvania  by  a  passenger 
against  a  New  Jersey  railroad  corporation  for  the  loss  of  his 
trunk,  and  it  was  held  that  it  made  no  difference  that  the  under- 
taking was  in  part  to  carry  the  baggage  across  the  Delaware 
River,  as  the  inhabitants  of  both  States  have  equal  rights  of 
navigation  and  passage  on  that  stream. 

A  consignor  of  goods  has  power  to  contract  for  their  carriage 
and  bind  the  consignee,  but  the  consignor  is  not  bound  by  a 
special  contract  limiting  liability  made  by  the  consignee  with  the 
carrier,  unless  it  is  shown  that  he  had  notice  of  the  consignee's 
contract  for  carriage.  A  contract,  fairly  entered  into,  limiting  a 
right  of  recovery  to  a  sum  expressly  agreed  upon  by  the  parties, 
as  representing  the  true  value  of  the  property  shipped,  is  not  a 
contract  exempting  the  carrier  in  any  degree  from  the  conse- 
quences of  its  own  negligence,  but  simply  fixes  the  rate  of 
freight  and  liquidates  the  damages.  A  shipping  receipt  that 
goods  are  shipped  "at  owner's  risk"  exempts  a  common  carrier 
(even  connecting  lines  of  road)  from  liability,  save  for  the 
negligence  of  the  party  charged  therewith. 

The  Pennsvlvania  cases  have  decided  that  if  the  valuation 


COMMON  CARRIERS  271 

of  goods  shipped  is  an  agreed  one,  made  in  consideration  of 
reduced  charges,  it  will  bind  the  shipper.  But  otherwise  any 
stipulation  fixing  the  limit  of  the  carrier's  liability  in  case  of  loss 
or  injury  is  void,  if  the  loss  is  the  result  of  the  carrier's 
negligence. 

The  general  freight  agent  of  a  common  carrier  is  authorized 
by  the  carrier  and  clothed  with  all  the  power  to  make  contracts 
for  freight,  or  in  respect  to  the  carrying  and  delivery  of  freight, 
that  the  carrier  itself  has  and  to  have  power,  therefore,  to  make 
valid  contracts  for  the  delivery  of  property  at  places  on  other 
roads  beyond  the  terminus  of  the  carrier's  own  route.  A  station 
agent  or  baggagemaster  has  only  the  authority  to  make  contracts 
for  the  carriage  of  goods  to  the  end  of  the  company's  road,  but 
not  to  points  beyond.  A  local  station  agent  has  no  power  to 
make  a  special  agreement  extending  the  liability  of  his  company 
for  shipments  beyond  his  own  line.  It  has  been  held  that  a 
shipper  contracting  with  a  railroad  station  agent  for  the  trans- 
portation of  freight  is  under  no  legal  obligation  to  make  inquiries 
concerning  the  station  agent's  instructions  or  powers.  Station 
agents  are  presumed  to  have  power  to  make  contracts  for  their 
railroads  for  the  transportation  of  freight,  and  the  public  cannot 
take  notice  of  any  restrictions  upon  their  powers  unless  notified 
thereof  in  some  way. 

Carrier's  Lien  for  Charges. 

The  law  gives  a  common  carrier  a  lien  upon  the  goods 
carried  by  it  and  still  in  its  possession  as  security  for  all  compen- 
sation and  charges  due  for  their  carriage,  as  well  as  all  proper 
storage  expenses.  By  such  a  lien  we  mean  that  the  common 
carrier  has  the  right  to  retain  possession  of  the  goods  carried 
until  all  charges  are  paid.  To  justify  a  lien  upon  goods  for  their 
freight,  the  relation  of  debtor  and  creditor  must  exist  between 
the  owner  of  the  goods  and  the  common  carrier.  A  carrier  who 
receives  goods  from  another  carrier  and  who  is  given  notice  that 
the  freight  charges  have  been  paid  in  advance  for  through-  ship- 
ment by  the  shipper,  cannot  acquire  any  lien  on  the  goods  for  its 
proportionate  share  of  the  freight  charges. 

The  lien  given  to  a  common  carrier  for  freight  charges  has 
priority  over  the  claims  of  general  creditors  of  the  shipper.  The 
carrier's  Hen  is  lost  as  soon  as  it  parts  with  the  possession  of  the 
goods,  but  while  the  common  carrier  has  control  of  the  goods 
they  cannot  be  taken  by  the  shipper,  consignee  or  sheriff  without 


272  COMMON  CARRIERS 

furnishing  indemnity  for  the  carrier's  charges  for  transportation 
or  storage.  Unless  regulated  by  statute  a  common  carrier  has  no 
right  to  sell  the  goods  upon  which  it  has  a  lien  for  charges, 
except  by  judicial  order  or  legal  process.  If  the  goods  are  so 
sold  the  common  carrier  must  account  to  the  owner  for  the 
proceeds  over  and  above  the  carrier's  charge  due  under  the  lien. 

Interstate  Transportation. 

In  view  of  the  government's  attitude  with  reference  to  the 
proper  supervision  of  corporations,  it  is  of  vital  importance  at  the 
present  time  to  understand  clearly  the  legal  principles  which 
control  legislation  affecting  corporations  engaged  in  interstate 
commerce,  and  particularly  such  principles  as  apply  to  common 
carriers. 

The  Constitution  of  the  United  States  vests  in  Congress  the 
power  "to  regulate  commerce  with  foreign  nations  and  among 
the  several  States  and  with  the  Indian  tribes."  It  was  early 
decided  by  the  Federal  Supreme  Court  that  interstate  commerce, 
or  commerce  among  the  several  States  of  the  Union,  consisted 
of  intercourse  and  traffic,  including  navigation  and  the  trans- 
portation of  passengers  and  property,  the  same  as  selling,  pur- 
chasing and  exchange  of  commodities  between  the  citizens  of 
different  States. 

In  1887  Congress  passed  the  Interstate  Commerce  Act,  and 
assumed  control  of  the  interstate  railway  traffic  of  the  country, 
the  objects  of  this  statute  being  "to  secure  just  and  reasonable 
charges  for  transportation ;  to  prohibit  unjust  discriminations  in 
the  rendition  of  like  services  under  similar  conditions  and  cir- 
cumstances ;  to  prevent  undue  and  unreasonable  preferences  to 
persons,  corporations  or  localities ;  to  inhibit  greater  compensa- 
tion for  a  shorter  than  for  a  longer  distance  over  the  same  line, 
and  to  abolish  combinations  for  the  pooling  of  freights." 

The  Interstate  Commerce  Commission  was  established  to 
administer  and  enforce  this  act.  This  Commission  is  authorized 
to  inquire  into  the  management  of  the  business  of  all  common 
carriers  doing  an  interstate  business,  and  to  demand  from  such 
carriers  such  information  as  is  required  by  the  Commission  to 
properly  perform  its  duties.  The  power  is  reserved  to  each  State 
to  regulate  the  charges  of  transportation  wholly  within  the  State. 
Congress  may,  however,  prohibit  railway  companies  from  charg- 
ing more  than  reasonable  compensation  for  the  services  rendered 
by  them  in  interstate  transportation.    The  Interstate  Commerce 


COMMOxN  CARRIERS  273 

Act  does  not  apply  to  transfer  and  switching  companies,  express 
companies,  bridge  or  ferry  companies,  or  stock  yard  companies, 
not  operating  railway  lines. 

The  first  section  of  the  Interstate  Commerce  Act  provides 
that  all  rates  established  by  a  common  carrier  must  be  just  and 
reasonable,  and  in  determining  whether  or  not  a  certain  rate  is 
reasonable  the  Commission  will  consider  the  interest  of  the  com- 
mon carrier,  the  shipper  and  the  general  public.  The  object 
which  it  is  the  policy  of  the  law  to  effect  is  equality  of  rates.  A 
reduction  in  rates  does  not  imply  that  former  rates  were  un- 
reasonable, because  such  reduction  may  be  due  to  an  increased 
volume  of  business  and  a  decrease  in  the  cost  of  transportation. 

A  common  carrier  is  prohibited  by  the  second  section  of  the 
Interstate  Commerce  Act  from  charging  one  shipper  a  greater  or 
less  compensation  for  any  service  rendered  in  the  transportation 
of  passengers  or  property  than  it  charges  another.  Under  this 
clause  only  unjust  and  unreasonable  discriminations  are  illegal, 
and  where  a  consideration  exists  for  reduced  rates,  the  charging 
of  such  rate  will  not  constitute  an  unlawful  discrimination.  To 
render  a  rate  illegal,  some  preference  must  be  shown. 

The  third  section  of  the  Interstate  Commerce  Act  forbids  a 
common  carrier  making  or  giving  any  undue  or  unreasonable 
preference  or  advantage  to  any  persons,  firm  or  locality,  the 
purpose  of  this  section  being  to  avoid  unjust  discriminations  for 
or  against  any  party  or  place,  it  being  required  that  rates  be 
substantially  equal  and  reasonable.  It  can  readily  be  seen  that  it 
is  unsound  in  principle  for  a  railroad  to  make  artificial  differences 
in  market  conditions  by  an  arbitrary  differential  in  rates  so  that 
the  products  of  one  section  of  the  country  must  go  to  one  market, 
and  the  products  of  a  different  section  to  another.  It  is  hard  to 
define  what  is  an  undue  preference  or  advantage  within  the  mean- 
ing of  the  law,  but  it  is  held  to  consist  in  giving  a  privilege  to  one 
party  or  place  which  is  denied  another  under  the  same  condition. 
It  is  the  duty  of  the  Interstate  Commerce  Commission  to  ascer- 
tain the  circumstances  and  decide  accordingly.  A  through  rate 
is  not  an  unjust  discrimination  against  an  intermediate  point,  or 
against  local  shippers,  because  it  is  less  proportionally  than  the 
rate  from  such  point  to  the  common  destination. 

A  common  carrier  is  also  compelled  by  section  three  of  the 
act  to  extend  reasonable,  proper  and  equal  facilities  for  the  inter- 
change of  traffic  between  their  respective  lines,  and  to  receive, 
forward  and  deliver  passengers  and  freight  to  and  from  their 
several  lines  and  those  connecting  therewith,  and  are  prohibited 

18 


274  COMMON  CARRIERS 

from  discriminating  in  their  rates  between  such  connecting  lines. 
Charges  for  long  and  short  hauls  are  regulated  by  the  fourth 
section  of  the  Interstate  Commerce  Act,  this  section  making  it 
unlawful  for  a  common  carrier  to  charge  or  receive  any  greater 
compensation  in  the  aggregate  for  the  transportation  of  passen- 
gers or  freight  for  a  shorter  than  for  a  longer  distance  under 
similar  circumstances.  The  object  of  the  law  is  to  encourage 
normal  competition,  and  a  schedule  of  rates  which  would  stifle 
such  competition  is  therefore  unlawful.  The  law  consequently 
imposes  the  duty  upon  a  common  carrier  to  print  and  keep  for 
public  inspection  schedules  showing  the  rates,  fares  and  charges 
for  transporting  passengers  and  freight.  It  is  unlawful  for  a 
common  carrier  to  collect  or  demand  a  greater  or  less  compensa- 
tion than  that  which  is  set  forth  in  the  published  schedules  of 
charges.  Any  effort  on  the  part  of  the  shipper  to  secure  lower 
rates  is  constituted  a  misdemeanor.  The  law  further  provides 
that  a  common  carrier  shall  not  raise  its  charges  or  rates  as 
published,  except  after  ten  days'  public  notice. 

"  Pooling  Freights." 

Any  contract,  agreement  or  combination  entered  into  by  one 
common  carrier  with  any  other  common  carrier  is  unlawful  under 
section  five  of  the  act,  if  such  contract  provides  for  the  pooling  of 
freights  of  different  or  competing  railroads,  or  for  dividing 
between  them  the  aggregate  or  net  proceeds  of  the  earnings  of 
such  railroads.  A  money  pool  under  which  the  net  earnings  of 
competing  roads  are  divided,  or  a  distribution  of  property  among 
competing  railroads,  effected  on  percentages  previously  agreed 
upon,  is  prohibited  by  the  act.  This  provision  of  the  law  does 
not  apply,  however,  to  a  pooling  contract  between  a  railroad 
company  and  a  pipe  line  company  organized  for  the  purpose  of 
transporting  oil. 

The  seventh  section  of  the  act  under  consideration  is  of 
particular  interest  to  every  shipper  of  goods.  It  forbids  a  com- 
mon carrier  from  entering  into  any  contract  to  prevent  by  change 
of  time  schedule,  carriage  in  different  cars  or  by  any  other  means, 
the  transportation  of  freights  from  being  continuous  from  the 
place  of  shipment  to  their  destination. 

Space  will  not  permit  an  analysis  of  every  section  of  this 
act,  the  more  important  ones  only  being  mentioned.  Anyone 
aggrieved  by  a  violation  of  this  act  may  seek  redress  by  pro- 
ceedings before  the  Interstate  Commerce  Commission  or  may 


COMMON  CARRIERS  275 

elect  to  sue  in  the  Courts  of  the  United  States,  the  Elkins  Act  of 
1903  giving  jurisdiction  to  the  Federal  Courts  in  tlie  matter  of 
any  violation  of  the  Interstate  Commerce  Act. 

"The  Railroad  Rate  BiU." 

Experiment  established  the  fact  that  many  deficiencies 
existed  in  the  Interstate  Commerce  Act  of  1887,  and  as  a  result 
the  broader  act  of  1906  was  passed  by  Congress,  popularly 
termed  the  "Railroad  Rate  Bill."  The  object  of  this  law  is  to 
give  broader  relief  for  every  discrimination,  injustice  and 
extortion  practiced  by  a  common  carrier  engaged  in  interstate 
commerce. 

This  act,  by  the  first  section,  is  made  applicable  to  any  person 
or  corporation  engaged  in  the  transportation  of  oil  or  other 
commodity  (except  water  and  natural  or  artificial  gas)  by  pipe 
lines  or  partly  by  railroads.  The  term  common  carrier  is  made 
to  include  express  companies  and  sleeping  car  companies,  and 
the  term  "railroad"  within  the  meaning  of  the  act  shall  include 
all  bridges  and  ferries  used  or  operated  in  connection  with  any 
railroad.  This  act  forbids  any  common  carrier  (on  and  after 
January  i,  1907)  to  issue  or  give  any  interstate  ticket,  free  pass 
or  free  transportation  for  passengers  except  to  its  employees  and 
their  families,  its  officers,  agents,  surgeons,  physicians  and  attor- 
neys-at-law;  to  ministers  of  religion,  traveling  secretaries  of 
railroad  Y.  M.  C.  A.'s,  inmates  of  hospitals  and  charitable  insti- 
tutions and  persons  engaged  in  such  work ;  to  inmates  of  soldiers' 
and  sailors'  homes,  to  necessary  caretakers  of  live  stock,  poultry 
and  fruit ;  to  employees  on  sleeping  cars,  and  to  linemen  on 
telegraph  and  telephone  companies;  to  postofiice  inspectors, 
customs  inspectors  and  immigration  inspectors ;  to  newsboys  on 
trains,  to  baggage  agents,  witnesses  attending  any  legal  investi- 
gation in  which  the  common  carrier  is  interested,  persons  injured 
in  wrecks  and  physicians  attending  such  persons. 

An  important  provision  of  the  Railroad  Rate  bill  which  will 
have  far-reaching  effect  is  that  prohibiting  any  railroad  company, 
on  and  after  May  i,  1908,  from  transporting  across  any  State  or 
Territorial  line  or  to  any  foreign  country  any  article  or  com- 
modity (except  timber  and  the  manufactured  products  thereof) 
mined  or  produced  by  it.  or  under  its  authority,  or  which  it  may 
own,  except  such  articles  or  commodities  as  are  necessary  for 
use  in  the  conduct  of  its  business  as  a  common  carrier. 

Common  carriers  are  required  by  the  act  to  construct  and 


276  COMMON  CARRIERS 

operate  upon  reasonable  terms  side  tracks  and  switch  lines  upon 
application  of  any  shipper  tendering  interstate  traffic  for  trans- 
portation. The  common  carrier  must  also  furnish  cars  for  the 
movement  of  such  traffic  without  discrimination  in  favor  of  or 
against  any  shipper.  The  Interstate  Commerce  Commission  is 
given  full  power  to  enforce  these  provisions  of  the  law. 

The  Railroad  Rate  bill  amends  the  Interstate  Commerce 
Act  with  reference  to  the  publication  of  rates,  the  Rate  bill  pro- 
viding that  common  carriers  must  print  and  keep  open  to  public 
inspection  schedules  showing  all  the  rates,  fares  and  charges  for 
transportation  between  all  different  points  on  its  own  route  and 
between  points  on  its  own  route  and  points  on  the  route  of  any 
other  carrier  by  railroad,  pipe  line  or  by  water,  when  a  through 
and  joint  rate  has  been  established.  The  schedules  so  printed  by 
a  common  carrier  must  plainly  state  the  places  between  which 
property  and  passengers  will  be  carried,  and  shall  contain  the 
classification  of  freight  in  force,  also  stating  separately  all  ter- 
minal charges,  storage  charges,  icing  charges  and  all  privileges 
or  facilities  granted  or  allowed,  and  any  rules  or  regulations 
which  in  any  wise  change  any  part  of  the  aggregate  of  such  rates 
and  charges,  or  the  value  of  the  services  rendered  to  the  pas- 
senger, shipper  or  consignee.  The  schedules  are  required  by 
law  to  be  printed  in  large  type,  and  copies  for  the  use  of  the 
public  must  be  kept  posted  in  two  public  places  in  every  depot, 
station  or  office  of  the  common  carrier,  where  passengers  or 
freight  are  received  for  transportation. 

Another  important  change  of  benefit  to  the  shipping  and 
traveling  public,  effected  by  the  Railroad  Rate  bill,  is  the  require- 
ment that  no  change  shall  be  made  in  the  rates,  fares  and  charges 
which  have  been  filed  and  published  by  a  common  carrier,  except 
after  thirty  days'  notice  to  the  Interstate  Commerce  Commission 
and  to  the  public,  published  as  aforesaid,  which  shall  plainly 
state  the  changes  proposed  to  be  made  in  the  schedule  then  in 
force  and  the  time  when  the  changed  rates,  fares  or  charges  will 
go  into  effect. 

A  common  carrier  is  forbidden  by  the  act  to  engage  in  the 
transportation  of  passengers  or  property  unless  the  rates  have 
been  filed  and  published  as  provided  by  law.  It  is  unlawful  for 
any  common  carrier  to  charge  a  greater  or  less  compensation  for 
such  transportation  of  passengers  or  property  than  those  pub- 
lished, and  the  act  further  makes  it  unlawful  for  any  common 
carrier  to  refund  by  any  device  any  part  of  the  rates,  fares  and 
charges  as  published,  or  to  extend  to  any  shipper  or  person  any 


COMMON  CARRIERS  277 

privilege  of  facilities  except  such  as  are  set  forth  in  the  traffic 
schedule  advertised. 

The  Interstate  Commerce  Commission  is  given  the  power 
under  the  act  to  establish  rates  or  declare  what  shall  be  a  proper 
charge  in  certain  cases  after  an  mvestigation  of  the  circumstances. 

The  Interstate  Commerce  Commission  is  authorized  to 
require  annual  reports  from  all  common  carriers  and  from  the 
owners  of  all  railroads  engaged  in  interstate  commerce.  Such 
reports  must  be  filed  before  the  13th  day  of  June  in  each  year, 
and  must  set  forth  the  most  comprehensive  statistics  regarding 
the  business  of  the  common  carrier.  The  Commission  is  given 
power  to  prescribe  the  form  of  all  accounts  kept  by  a  common 
carrier,  and  shall  at  all  times  have  access  to  all  accounts,  records 
or  memoranda  kept  by  the  common  carrier. 

Failure  to  publish  tariff  schedules  and  granting  or  accepting 
rebates  or  kindred  discriminations  is  punishable  by  a  fine  of  not 
less  than  $1,000  and  not  more  than  $20,000.  The  maximum  fine 
was  imposed  by  Judge  Landis  in  the  well-known  case  against 
the  Standard  Oil  Company. 

Carriers  of  Passengers. 

The  subject  of  common  carriers  cannot  be  properly  con- 
cluded without  a  brief  discussion  of  the  right  and  liabilities 
attaching  to  a  common  carrier  of  passengers,  which  we  have  only 
referred  to  heretofore  in  a  very  general  way. 

There  is  a  very  marked  distinction  between  the  liability 
between  a  common  carrier  of  freight  and  one  of  passengers.  A 
passenger  has  judgment  and  discretion  and  the  power  of  locomo- 
tion, and  consequently  the  law  which  holds  a  common  carrier  of 
freight  liable  as  an  insurer,  except  in  cases  of  inevitable  accident, 
does  not  apply  to  a  carrier  of  passengers.  A  carrier  of  passengers 
is  responsible  for  any  injury  to  a  passenger  caused  by  its  negli- 
gence or  that  of  its  servants  or  employees.  A  common  carrier 
of  passengers  is  bound  to  exercise  the  highest  degree  of  care 
and  prudence  in  safeguarding  persons  carried  by  it,  but  in 
regard  to  the  baggage  of  a  passenger  it  is  liable  as  an  insurer. 
The  relation  of  carrier  and  passenger  is  created  by  contract, 
express  or  implied,  and  where  no  express  contract  is  made,  the 
liability  of  the  carrier  depends  upon  the  duty  imposed  by  law,  in 
the  event  of  the  passenger  sustaining  personal  injurits. 

A  passenger  is  one  who  enters  the  vehicle  of  a  carrier  with 
the  intention  of  paying  the  usual  fare  for  his  transportation,  or 


278  COMMON  CARRIERS 

who  is  supplied  with  a  ticket  or  pass,  which  gives  nim  the  right 
to  ride  to  a  given  point.  If  a  railroad  company  accepts  passen- 
gers on  a  freight  train,  charging  the  regular  fare,  it  incurs  the 
same  liability  for  their  safety  as  if  they  were  in  the  passenger 
cars.  As  soon  as  a  passenger  has  made  a  contract  for  his  passage 
upon  a  vehicle  of  a  common  carrier,  and  presents  himself  at  the 
proper  place  to  be  transported,  his  right  to  care  and  protection 
of  a  passenger  commences.-  Walking  into  a  station,  ticket  office 
or  waiting  room,  with  intention  of  becoming  a  passenger  places 
one  in  the  position  of  a  passenger.  This  regulation  is  established 
when  a  street  car  stops  at  a  usual  place  for  passengers  and 
persons  get  on  the  steps,  or  the  platform  of  a  car  to  take  passage. 
If  a  person  by  mistake  gets  on  a  passenger  train  which  does  not 
stop  at  the  station  named  in  the  ticket  and  the  conductor  punches 
it  so  that  he  cannot  ride  on  another  train,  such  person  is  entitled 
to  all  the  rights  of  a  passenger  upon  the  train  upon  which  he  is 
riding.  It  is  not  necessary  for  a  person  to  have  entered  upon 
the  vehicle  of  the  common  carrier  to  constitute  him  a  passenger, 
as  he  may  become  such  before  he  enters  the  train  or  car,  and 
before  transportation  begins.  The  fact  that  a  person  has  not 
paid  his  fare  at  the  time  an  accident  occurs  in  which  he  is  injured 
would  not  make  him  any  the  less  a  passenger  if  the  conductor 
had  not  demanded  his  fare. 

The  relation  of  carrier  and  passenger  ends  when  the  pas- 
senger has  been  safely  discharged  at  the  point  of  destination 
called  for  by  his  ticket.  Where  a  passenger  is  sleeping  in  a  day 
coach  when  the  train  arrives  at  his  destination,  his  failure  to 
leave  the  train  immediately  does  not  terminate  the  relation  of 
passenger  or  carrier,  or  alter  the  latter's  duty  to  him  as  such. 
Traveling  on  Sunday  for  pleasure  in  violation  of  a  statute  would 
not  alter  the  relation  of  the  carrier  and  the  passenger  so  as  to 
relieve  the  carrier  from  liability  for  negligence. 

A  ticket  providing  for  a  single  passage  or  "one  continuous 
passage"  between  two  points  prevents  the  passenger  from  stop- 
ping at  any  intermediate  station  and  renewing  the  journey  on 
another  train,  and  upon  leaving  a  train  at  any  intermediate  point 
the  passenger  terminates  his  contract  as  such.  It  has  been  held 
in  Pennsylvania  that  the  fact  that  a  conductor  on  one  part  of  the 
route  allowed  a  passenger  to  stop  over  on  a  through  ticket,  did 
not  entitle  him  to  the  same  privilege  from  a  different  conductor 
on  another  part  of  the  road. 

A  trespasser,  "dead  head,"  or  tramp  entering  a  train  to 
steal  a  ride  is  not  a  passenger,  even  though  an  engineer  gives 


COMMON  CARRIERS  279 

authority  to  do  so.  A  man  having  an  understanding  with  a  con- 
ductor, whereby  he  may  ride  free,  commits  a  fraud  on  the  com- 
pany and  is  only  a  trespasser.  The  only  duty  which  a  common 
carrier  owes  to  such  people  is  to  abstain  from  wilful  or  reckless 
injury.  A  person  who  gets  on  a  train  after  it  has  started  or  who 
tries  to  board  a  moving  street  car,  is  not  a  passenger  until  he  has 
reached  a  place  of  safety  inside  the  conveyance. 

A  common  carrier  has  the  right  to  provide  on  its  ticket  that 
same  must  be  used  on  date  of  issue  or  with  a  limited  time  there- 
after. A  round-trip  ticket  punctured  for  separation  into  two 
parts,  and  marked  "not  good  for  passage  if  detached,"  is  good 
where  the  parts  have  become  separated  by  accident,  if  both  parts 
are  presented  to  the  conductor  on  the  outward  trip.  The  wrong 
part  of  a  round-trip  ticket  returned  by  mistake  to  a  passenger  by 
the  conductor,  is  good  on  the  return  trip. 

A  person  entering  a  car  at  a  depot  to  assist  an  aged  or  infirm 
person  to  a  seat  is  not  a  passenger,  and  a  common  carrier  only 
owes  to  such  person  the  duty  of  providing  safe  accommodations 
with  regard  to  its  depot  and  platforms. 

If  the  car  starts  before  such  a  person  has  an  opportunity  to 
leave,  the  party  assisting  a  passenger  on  board  must  remain  until 
a  conductor  stops  the  car,  and  any  attempt  to  alight  while  the 
car  is  in  motion  will  be  at  the  risk  of  the  party  attempting  to  do 
so.  A  common  carrier  is  under  no  legal  obligations  to  hold  a 
car  until  every  person  not  a  passenger  leaves. 

An  employee  of  a  common  carrier  riding  to  or  from  his 
home  and  place  of  business  free  of  charge  is  not  a  passenger, 
and  the  carrier  is  not  liable  for  his  death  or  injury  caused  by  the 
negligence  of  a  co-employee.  The  enactment  of  an  Employers' 
Liability  act,  recently  recommended  to  Congress  by  the  President, 
will  doubtless  change  the  law  in  this  regfard. 

A  common  carrier  has  the  right  to  make  reasonable  rules 
and  regulations  to  prevent  passengers  from  occupying  positions 
on  its  cars  which  are  dangerous,  but  when  passengers  are  per- 
mitted and  in  certain  instances  required  to  occupy  dangerous 
positions,  the  carrier  must  still  exercise  extraordinary  care  and 
diligence  for  their  safety.  As  has  been  previously  pointed  out, 
a  common  carrier  of  passengers  is  not  an  insurer  of  their  safety, 
but  is  required  to  use  the  highest  degree  of  care  to  guard  against 
accident.  The  degree  of  care  required,  of  course,  depends  largely 
upon  circumstances;  and  if  an  accident  occurs  from  a  defect  in 
the  roadbed,  machinery,  construction  of  cars  or  defective  appli- 
ances of  any  kind,  the  carrier  is  responsible,  being  required  to 


28o  COMMON  CARRIERS 

exercise  sufficient  care  and  prudence  to  prevent  the  occurrence  of 
such  accidents. 

Common  carriers  are  not  bound  to  place  bars  or  screens  on 
their  windows  to  prevent  passengers  putting  their  arms  out. 
Carriers  of  passengers  in  conveyances  operated  by  steam  and 
electricity,  where  the  consequences  of  accidents  due  to  defects  in 
machinery  or  appliances  are  usually  fatal,  must  use  every  pre- 
caution which  human  foresight  can  provide  to  secure  safety  in 
adopting  new  improvements  and  in  the  general  operation  of  their 
road.  Thus  a  common  carrier  has  been  held  liable  for  injuries 
to  a  passenger  caused  by  an  electric  shock  from  a  hand  rail 
charged  with  electricity  because  of  imperfect  insulation,  which 
could  have  been  readily  discovered.  The  rule  has  been  established, 
however,  that  a  common  carrier  is  not  liable  for  defects  which 
could  not  be  discovered  by  the  application  of  any  tests  known  or 
practiced,  or  by  the  usual  and  proper  tests  by  skillful  and 
experienced  men. 

In  cases  where  a  common  carrier  uses  the  track  of  another 
road  or  the  bridge  of  another  company,  which  it  neither  owns 
nor  controls,  but  merely  leases  or  obtains  the  right  of  trackage 
thereon,  it  makes  the  track  or  bridge  so  leased  its  own  so  far  as 
its  liability  for  accidents  is  concerned,  which  result  from  defects. 
A  common  carrier  must  construct  its  road  in  such  a  way  as  to 
resist  such  violence  of  the  weather  as  might  be  expected  to  occur 
in  the  climate  and  locality  through  which  it  runs.  No  one  can  be 
subjected  to  liability  for  an  act  done  without  fault  on  his  part, 
and  hence  a  carrier  is  not  liable  for  an  injury  to  a  passenger 
caused  by  the  breaking  of  a  rail  from  the  extreme  cold  under 
circumstances  which  human  foresight  could  not  have  anticipated 
or  prevented. 

Where  the  conveyance  fs  by  stage  coach  the  proprietor  is 
required  to  furnish  safe  coaches,  well-broken  horses,  good  harness 
and  careful  drivers.  Common  carriers  by  steamboat  or  steamship 
must  provide  navigable  vessels  and  even  a  certificate  by  a  United 
States  inspector  that  the  vessel,  her  boilers  and  machinery  come 
up  to  the  requirements  of  the  statute,  would  not  exempt  the 
owner  from  liability  if  the  vessel  was  defective.  Carriers  by 
water  must  provide  guard-rails  and  safe  approaches  and  landings 
for  the  receipt  and  discharge  of  passengers,  being  liable  for  any 
injury  resulting  to  a  passenger  from  falling  off  a  stage,  plank  or 
gangway. 

The  law  requires  carriers  of  passengers  by  sea  to  employ  a 
qualified  physician.     A  railroad  company  which  assumes  volun- 


COMMON  CARRIERS  281 

tarily  to  employ  a  surgeon  to  be  given  charge  of  injured  persons 
is  not  liable  for  the  negligence  of  the  surgeon,  provided  he  is  a 
properly  qualified  medical  practitioner  and  is  furnished  with 
proper  instruments  and  medicine. 

Discriminations  Against  Passengers. 

All  common  carriers  of  passengers  are  required  to  receive 
and  transport  all  persons  who  request  a  passage  and  offer  to  pay 
the  fare,  provided  of  course  there  is  room  in  the  car  and  the 
person  applying  for  passage  is  not  intoxicated  or  in  an  otherwise 
unfit  condition.  On  this  ground  refusal  of  a  street  railway  com- 
pany to  accept  a  passenger  carrying  in  his  arms  a  live  goat  was 
sustained  by  the  Supreme  Court.  A  common  carrier  is  not 
obliged  to  carry  a  person  who  is  fleeing  from  justice  or  one  of 
known  dangerous  habits.  Slight  intoxication,  such  as  would 
not  render  his  conduct  obnoxious  to  the  other  passengers,  would 
not  be  sufficient  ground  to  refuse  a  man  passage  on  a  public 
conveyance.  A  common  carrier  may  require  a  blind  man  to 
secure  an  attendant  before  accepting  him  as  a  passenger,  as  a 
blind  man  is  incompetent  to  travel  alone,  particularly  on  a  rail- 
road or  steamboat.  A  common  carrier  may  exclude  from  its 
cars  any  passengers  who  enter  for  the  purpose  of  selling  books, 
papers  or  refreshments,  as  this  right  is  regulated  by  special 
license  or  agreement  with  the  carrier.  Unless  regulated  by  a 
statute  (as  in  certain  of  the  Southern  States)  a  common  carrier 
cannot  refuse  passage  to  a  person  on  account  of  race  or  color. 
Equal  accommodations  must  be  provided  for  all,  although  a 
certain  class  of  passengers  may  be  required  to  occupy  a  certain 
part  or  section  of  the  car. 

A  common  carrier  is  compelled  by  law  to  protect  its  passen- 
gers from  violence,  insult  or  ill  treatment  from  either  its  servants 
or  fellow-passengers  and  strangers.  Any  passenger  injured  by 
the  wilful  and  malicious  conduct  of  a  servant  or  employee  of  the 
common  carrier  is  entitled  to  damages.  It  has  been  held  that 
where  a  conductor  of  a  street  car  had  given  directions  to  trans- 
fer to  another  line,  and  stopped  the  car,  but  not  for  the  purpose 
of  enabling  the  passengers  desiring  to  transfer  to  alight,  it  was 
the  duty  of  the  conductor  to  warn  the  passengers  to  keep  their 
seats  till  he  should  give  further  directions.  The  fact  that  the 
motorman  left  the  car  on  which  a  passenger  was  riding,  and 
that  the  conductor  took  his  place  and  became  acting  motorman 
in  sole  charge  of  the  car,  was  not  such  negligence  as  would 


282  COMMON  CARRIERS 

render  the  street  car  company  liable  for  injuries  received  by  a 
passenger  in  alighting  from  the  car.  It  is  well  settled  that  a 
common  carrier  is  liable  for  an  assault  by  its  conductor  upon  a 
boy  who  attempts  to  steal  a  ride  on  the  carrier's  car.  If  a  pas- 
senger provokes  or  commences  an  altercation  with  an  employee 
of  a  common  carrier,  and  this  brings  an  assault,  it  has  been  held 
that  the  carrier  would  not  be  liable.  Mere  abusive  language  is 
not  sufficient  to  justify  the  commission  of  an  assault  by  a  con- 
ductor on  a  passenger.  Sneers  or  contemptuous  gestures  will 
not  justify  an  assault,  but  a  conductor  or  other  employee  of  a 
common  carrier  may  exercise  the  right  of  self-defense  if  the 
passenger  commences  the  assault.  A  passenger  cannot  recover 
for  abusive  language  addressed  to  him  by  the  conductor,  or  for 
the  act  of  the  latter  in  knocking  him  down  after  he  had  left  the 
car,  where  the  offensive  language  was  used  and  the  blow  struck 
in  response  to  abuse  by  the  passenger  who  was  the  aggressor  in 
the  conflict.  If  a  conductor  beats  a  passenger  who  slaps  his 
face  with  his  hand,  and  in  so  doing  uses  force  greatly  exceeding 
that  which  appears  to  a  reasonable  man  necessary  to  repel  the 
assault,  the  carrier  is  liable. 

If  an  agent  or  employee  of  a  common  carrier  causes  a  pas- 
senger to  be  arrested  without  legal  cause,  the  common  carrier 
will  be  liable  for  false  imprisonment.  For  example,  if  a  passen- 
ger has  been  arrested  upon  a  false  charge  of  not  having  paid 
his  fare,  the  common  carrier  will  be  liable.  Should  a  conductor 
cause  the  arrest  of  a  passenger  on  the  ground  that  he  had 
proffered  counterfeit  coin  in  payment  of  his  fare,  and  it  should 
subsequently  be  proved  that  the  coin  was  good,  the  carrier  would 
not  be  liable  for  false  arrest.  This  conclusion  seems  to  contra- 
dict the  previous  statement,  but  the  rule  is  based  on  the  principle 
that  the  conductor  in  causing  the  arrest  of  the  alleged  counter- 
feiter was  not  acting  within  the  line  of  his  duty  as  agent  of  the 
common  carrier,  but  was  performing  a  supposed  service  to  the 
community  by  procuring  the  arrest  of  a  person  presimied  to  be 
a  criminal. 

A  street  railway  company  is  not  guilty  of  negligence  in 
operating  its  cars  during  a  strike  of  its  employees,  and  if  a  pas- 
senger was  struck  and  injured  by  a  missile  thrown  by  one  of  a 
mob  of  striking  employees  of  the  street  car  company,  he  would 
not  be  entitled  to  recover  damages  from  the  common  carrier. 
The  duty  of  the  common  carrier  is  to  protect  its  passengers  from 
harm,  and  any  assault  or  violence  from  a  fellow-passenger,  and 
would  be  hence  liable  if  one  of  its  employees  permitted  a  drunken 


I 


COMMON  CARRIERS  283 

and  disorderly  person  to  enter  the  car  after  being  once  ejected, 
even  if  the  employee  had  no  reason  to  believe  that  the  ejected 
passenger  would  again  become  disorderly  or  assault  any  of  the 
passengers.  A  common  carrier  would  not,  however,  be  liable 
to  a  passenger  for  injuries  received  by  being  thrown  down  or 
jostled  by  a  drunken  passenger  who  is  being  ejected  from  the 
car  by  the  conductor  who  is  using  due  care.  It  has  been  held, 
on  the  other  hand,  that  a  quarrel  by  a  guard  on  an  elevated 
railroad  train  with  an  intoxicated  passenger,  upon  a  crowded 
platform,  by  which  a  crowd  is  caused  to  jostle  a  passenger  on 
the  platform  so  as  to  lead  him  to  seize  the  railing,  whereby  his 
arm  is  caught  between  the  railings  and  two  cars  and  injured,  is 
such  negligence  as  would  render  the  common  carrier  liable  in 
damages  to  the  injured  party. 

Not  only  does  a  common  carrier  owe  a  duty  to  well  passen- 
gers, but  also  to  those  who  are  sick.  A  common  carrier  has  the 
right  to  exclude  one  whose  sickness  would  be  detrimental  to  the 
safety,  health  or  comfort  of  the  other  passengers,  but  such  right 
must  not  be  exercised  inhumanely.  For  illustration,  a  common 
carrier  has  the  right  to  reject  a  passenger  who  breaks  out  with 
any  eruption  which,  according  to  the  best  medical  advice  at 
hand,  is  believed  to  be  small-pox,  even  though  such  belief  is  a 
mistaken  one.  A  passenger  suffering  from  delirium  tremens, 
to  the  annoyance  of  the  other  passengers,  may  be  ejected,  on 
the  same  principle,  without  liability  on  the  part  of  the  common 
carrier. 

It  is  the  duty  of  a  passenger  to  take  a  seat  on  the  inside  of 
a  car  if  he  can  find  one,  and  standing  on  the  front  or  back  plat- 
form of  a  car  has  been  held  to  be  contributory  negligence,  which 
would  debar  the  passenger,  if  injured,  from  recovering  damages. 
The  employees  of  a  street  car  company  are  required  to  exercise 
greater  care  where  a  passenger  is  forced  to  ride  upon  the  step 
of  a  car,  because  he  cannot  find  a  seat  inside.  Precisely  the 
same  care  is  not  due  every  passenger  without  regard  to  age, 
sex  or  bodily  infirmity,  because  if  a  passenger  is  crippled,  infirm 
or  of  tender  years  the  carrier's  duty  must  be  performed  with 
due  regard  to  such  condition. 

Premature  starting  of  a  car  or  sudden  jerking  or  jolting 
when  stopping  is  negligence  on  the  part  of  the  common  carrier. 
The  weight  of  authority  imposes  the  duty  on  the  common  carrier 
to  announce  each  station  at  which  a  stop  will  be  made.  An 
announcement  by  a  conductor  or  brakeman  of  the  station  the 
train  is  approaching  is  the  ordinary  method  of  warning  the  pas- 


284  COMMON  CARRIERS 

sengers  that  the  train  is  nearing  the  station,  so  that  they  may 
alight  at  their  destination.  It  is  the  duty  of  every  traveler  to 
ascertain  upon  purchasing  his  ticket  and  before  boarding  the 
train  whether  it  will  stop  at  all  the  stations  on  the  route  or  only 
the  principal  ones.  Passengers  have  the  right  to  rely  on  the 
information  given  them  by  the  ticket  agent  as  to  the  stoppages 
of  the  train.  A  common  carrier  is  liable  in  damages  for  failure 
to  stop  at  a  station  at  which  it  is  scheduled  to  stop.  The  mere 
crowded  condition  of  a  train  of  cars  is  not  a  legal  excuse  for 
failure  to  stop  a  train  at  the  station  called  for  by  the  ticket  of 
the  passenger,  for  fear  still  more  passengers  would  get  on  board. 
If  a  passenger  wants  to  get  off  at  a  flag  station,  at  which  the 
train  does  not  stop  except  on  signal,  the  carrier  will  not  be 
liable  for  carrying  him  to  the  next  station,  no  matter  how  far 
distant,  unless  the  passenger  gave  the  conductor  timely  notice 
to  stop  at  such  flag  station.  Upon  making  a  stop,  proper  warn- 
ing of  the  departure  of  the  train  must  be  given.  A  call  of  "All 
aboard"  made  by  a  conductor  or  trainman  prematurely  is  an 
invitation  to  board  the  train,  and,  if  at  such  time  it  was  unsafe 
to  do  so,  the  common  carrier  would  be  liable  to  any  one  misled 
thereby. 

A  railroad  company  is  entitled  to  designate  certain  doors 
and  steps  by  which  its  passengers  shall  leave  its  train,  and  is 
consequently  not  liable  for  injuries  received  by  a  passenger  who 
attempts  an  unusual  mode  of  egress.  If  a  train  or  car  has  gone 
beyond  the  station  platform,  the  passenger  should  request  the 
conductor  to  back  up  the  train  to  enable  him  to  step  on  the 
platform.  Jumping  from  a  moving  car  which  has  passed  a 
desired  station  will  exempt  the  common  carrier  from  liability.  If 
a  passenger  is  carried  beyond  his  destination,  he  has  the  right 
to  recover  damages  for  the  inconvenience,  loss  of  time,  and  ex- 
pense of  traveling  back.  Failure  to  stop  at  the  point  called  for 
by  the  passenger's  ticket  is  not  only  breach  of  contract,  but  also 
negligence.  If  the  train  has  passed  the  desired  station,  the  pas- 
senger should  request  the  conductor  or  other  agent  of  the  rail- 
road to  run  the  train  back  to  the  proper  station.  In  one  case  a 
passenger  carried  beyond  her  destination,  got  off  the  train  and 
attempted  to  walk  back  in  the  night  time  and  was  injured.  Her 
right  to  recover  was  denied  by  the  Court  on  the  ground  that 
it  was  the  duty  of  the  passenger  to  request  the  conductor  to 
return  to  the  station  her  ticket  called  for. 

The  publication  of  a  time  table  by  a  railroad  or  other  com- 
mon carrier  imposes  the  duty  to  have  the  trains  arrive  and  depart 


COMMON  CARRIERS  285 

at  the  precise  moments  indicated.  If  a  fireman  neglects  to  get 
up  steam  in  time  to  start  a  passenger  train  according  to  schedule, 
any  passenger  suffering  loss  by  reason  of  such  delay  may  recover 
damages  therefor.  For  example,  a  theatrical  troupe,  lecturer 
or  opera  singer,  prevented  from  reaching  a  destination  in  time  to 
fulfill  an  advertised  engagement,  by  the  negligence  of  the  com- 
mon carrier,  can  recover  such  damages  as  can  be  proved.  A 
case  is  made  stronger,  however,  by  notifying  the  common  carrier 
of  the  urgent  necessity  of  prompt  carriage. 

Carrier's  Duty  to  Provide  Seats. 

It  is  impossible  to  go  into  all  the  intricacies  of  negligence 
as  applied  to  common  carriers,  in  a  book  of  this  kind;  but 
as  practically  every  one  uses  a  public  conveyance  more  or  less, 
it  is  of  the  greatest  importance  to  understand  thoroughly  the 
legal  principles  which  regulate  the  rights  and  liabilities  of  com- 
mon carriers  and  passengers.  A  knowledge  and  observance  of 
the  rules  stated  will  tend  to  avoid  considerable  unnecessary 
trouble  and  expense. 

The  law  requires  a  common  carrier  to  provide  its  passengers 
with  seats.  This  rule  does  not  apply  to  street  railway  companies 
in  the  absence  of  special  statutory  provision.  A  passenger  who 
accepts  transportation  on  a  railroad  train  is  presumed  to  waive 
his  right  to  a  seat,  and  upon  his  refusal  to  surrender  his  ticket  or 
pay  fare,  may  be  ejected,  the  passenger  having  no  right  to  ride 
free  if  not  furnished  with  a  seat.  If  not  provided  with  a  seat, 
the  passenger  may  leave  the  train  and  recover  damages  for  the 
railroad's  breach  of  contract.  It  has  been  held  that  a  male 
passenger  who  has  taken  a  seat  in  a  car  exclusively  reserved  for 
ladies  cannot  lawfully  be  removed  from  the  train  without  being 
offered  a  seat  elsewhere.  It  is  obligatory  on  a  conductor  of  a 
train  to  furnish  a  holder  of  a  first-class  ticket  with  a  seat  in  a 
first-class  coach. 

Passenger's  Baggage. 

Passengers  are  permitted  to  carry  with  them,  and  a  carrier 
is  in  duty  bound  to  protect  such  articles  of  personal  convenience 
and  necessity,  generally  designated  as  baggage.  Books  bought 
for  another  person,  cloth  for  a  dress  intended  for  a  third  person, 
deeds  and  legal  documents,  Masonic  regalia,  engravings,  etc., 
have  been  held  not  to  be  baggage.  A  sportsman  may  take  with 
him  as  baggage  on  an  excursion  in  addition  to  his  clothing,  his 


286  COMMON  CARRIERS 

guns  and  fishing  tackle,  a  musician  his  favorite  instrument,  and 
a  mechanic  his  tools.  But  a  railroad  company  is  not  obliged  to 
carry  as  baggage  a  box  of  guns,  a  pianoforte  or  the  tools  of  a 
machine  shop,  or  stage  costumes  and  scenery.  The  Supreme 
Court  of  Pennsylvania  has  decided  that  a  passenger  cannot  re- 
cover for  an  embroidered  table  centerpiece  of  her  own,  and  a 
dress  belonging  to  her  mother,  carried  with  her  own  personal 
clothing.  A  distinction  must  be  made  between  what  is  baggage 
and  what  is  freight.  The  rule  followed  may  be  thus  stated: 
Baggage  consists  of  such  articles  as  are  usually  carried  by  pas- 
sengers for  their  personal  use,  comfort,  instruction,  amusement 
or  protection.  The  length  and  character  of  the  journey  must  be 
considered  and  the  station  in  life  occupied  by  the  passenger. 
For  instance,  what  might  be  considered  as  freight  for  a  tramp 
or  peddler  would  be  construed  as  baggage  if  carried  by  a  million- 
aire or  United  States  Senator  or  Ambassador.  Jewelry  not 
intended  to  be  worn  on  the  person  is  freight. 


APPLICATION  FOR  PATENT 

Ipetitton 
Co  tit  Commi$iBtionec  of  9atent0: 

The  petition  of  ' 


citizen 


of  residing  at 

in  the  County  of  ,  State  of 

pray      that  Letters  Patent  may  he  granted  to  far 

improvement       in 

as  set  forth  in  the  annexed  Specification. 
And  hereby  appoint  ' 


of 

Registration,  No.  ,  Attorney, 

with  full  power  of  substitution  and  revocation,  to  prosecute  this  appli- 
cation, to  make  alterations  and  amendments  therein,  to  receive  the 
Patent,  and  to  transact  all  business  in  the  Patent  Office  connected 
therewith.     My  Post  Office  address  is 

Signed  at  ,  in  the  County  oj 

and  State  of  ,  this  day  of 

19 
Sign  here,  first  name  in  full. 


citizen 


Specification 

Co  all  tt)t)om  it  map  Concern: 
Be  it  knotDn.  That 

of  ,  residing  at 

in  the  County  of  ,  and  State  of 

ha     invented  certain  new  and  usefxd  improvements  in 

of  which  the  following  is  a  specification 

In  ^(0ttmonp  ^lierrof.  qffix  signature      in 

presence  of  two  witrwsses. 

Sign  here,  first  name  in  fidl.9^ 

Two  witnesses.9^' 


flDatl) 

State  of  I 

County  of  \ 

J 

the  above  named  petitioner    ,  being  duly  sworn,  depose    and  say 

that  citizen    of^  and  resident  of 

in  the  County  of  and  State  of 

and  that  verily  believe  to  be  the 

original,  first,  and  *  inventor     of  the  improvement 

in 

described  and  claimed  in  the  annexed  specification;  that 
do        not  know  and  do        not  believe  that  the  same  was  ever  known 
or  used  before  invention  or  discovery  thereof;  or  patented  or 

described  in  any  printed  publication  in  any  country  before 
invention  or  discovery  thereof  or  more  than  two  years  prior  to  this 
application,  or  in  public  use  or  on  sale  in  the  United  States  for  more 
than  two  years  prior  to  this  application,  and  that  no  application  for 
patent  on  said  improvement  has  been  filed  by  or 

representatives  or  assigns  in  any  foreign  country, 
except  as  follows:  * 


Sign  here,  first  name  in  full. 
Sworn  to  and  subscribed  before  me  this  day  of 

(Official  Signature.) 
(Official  Character.) 

(L.  S.) 

Note — If  executed  before  an  officer  who  is  not  provided  with  a  seal,  the 
certificate  of  the  clerk  of  a  Court  of  Record  must  be  affixed,  showing  the  official 
character  of  suxh  officer. 

If  the  Inventor  be  dead,  the  oath  will  be  made  by  the  administrator,  or  exec- 
utor, who  will  declare  his  belief  thai,  the  party  named  a^  inventor  was  tfie  original 
and  first  inventor. 

^  In  case  of  the  assignment  of  the  whole  interest  in  ike  invention,  the  application  and  oath 
must  be  made  by  the  actual  inventor,  if  alive,  even  if  the  patent  is  to  be  issued  to  an  assignee.  If 
inventor  be  dead,  it  may  be  made  by  the  executor  or  administrator. 

2  If  the  power  of  attorney  be  given  to  a  firm,  the  full  name  of  each  member  of  the  firm  must 
be  inserted,  or  it  will  be  ignored. 

•"  //  the  applicant  be  an  alien,  the  oath  will  show  of  what  foreign  or  sovereigji  State  he  is  a 
citizen  or  subject. 

*  If  the  applicants  claim  to  be  joint  inventors,  the  oath  will  show  "that  they  verily  believe 
themselves  to  be  the  original,  first,  and  joint  inventors,"  etc.  If  by  ■%singleinventor, the  word"  sole" 
should  be  inserted. 

^  If  a  ny  such  application  for  foreign  patent  has  been  filed  more  than  seven  months  prior 
to  this  application  the  applicant  will  be  required  before  the  issuance  of  patent  to  state  that  no 
patent  has  been  granted  on  the  application  so  filed 


ASSIGNMENT  OF  PATENT 

Q2Il|)erta0» 

did  obtain  Letters  Patent  of  the 
United  States  for 

which  Letters  Patent  bear  date  the  day  of 

1  and  are  numbered 

And  Whereas,  now  sole  owner    of  the  said  Patent  and 

of  all  rights  under  the  same 

And  Whereas, 

desirous  of  acquiring  interest  therein: 

jRotD  tlieretorr.  to  all  to^om  it  map  conttm,  he  it  knoton. 

that  for  and  in  consideration  of  the  sum  of 

to  in  hand  paid,  the  receipt  of  which  is  hereby  acknowledged, 

have  sold,  assigned  and  transferred,  and  by  these  presents 
do  sell,  assign  and  transfer  unto  the  said 

all  the  right 
title  and  interest  in  and  to  the  said  Invention,  as  secured  to 
by  said  Letters  Patent,  for,  to  and  in 


and  in  no  other  place  or  places:  the  same  to  be  held  and 
enjoyed  by  the  said 

for  own  use  and  behoof,  and  the  use  and  behoof  of 

legal  representatives,  to  the  full  end  of  the  term  for  which  said  Letters 
Patent  are  or  may  be  granted,  as  fully  and  entirely  as  the  same  would 
have  been  held  and  enjoyed  had  this  sale  and  assignment 

not  be€7i  made. 

Jn  ^e0timonp  UH^ntOt.  have  hereunto  set 

hand      and  affixed  seal      at  in  the  County  of 

and  State  of  this 

day  of  A.  D.  19 

SralrO  ant  Ddttetm     *] 

IN  THE  rUESENCK  OK    ( 


ASSIGNMENT  OF  PATENT  LICENSE 

Cl)i0  JnHentUre,  Made  this  day  of 

between  of  ,  hereinafter  called  "the 

vendor/'  of  the  one  part,  and  of  ,  herein- 

after called  "the  purchaser/'  of  the  other  part:  Whereas,  by  license 
under  seal  dated  ,  and  made  between  , 

the  licensor,  of  the  one  part,  and  the  vendor,  of  the  other  part,  the  said 
licensor  granted  unto  the  vendor,  and  his  assig7is  the  sole  and  exclusive 
right  within  the  city  of  to  manufacture  articles  according 

to  the  invention  mentioned  in  said  license,  and  the  letters  patent  in 
respect  thereof,  for  the  residue  of  the  term  of  fourteen  years  comprised 
in  the  said  letters  patent,  at  royalties  payable  half-yearly  on  every 
day  of  and  day  of  , 

and  subject  to  the  covenants  and  conditions  therein  contained;  and 
whereas  the  vendor  hath,  from  the  date  of  the  said  license  up  to  the 
present  time,  worked  the  said  invention  in  the  said  city  in  accordance 
with  the  terms  thereof;  and  whereas  the  vendor  lately  agreed  with  the 
purchaser  for  the  sale  to  him  of  his  business  in  the  said  city  of  manu- 
facturing and  selling  the  said  articles,  and  the  business  of  a 
as  from  the  said  day  of  last;  and  whereas 

it  was  part  of  the  said  agreement  that  the  purchaser  should  purchase 
the  said  license  for  the  sum  of  dollars;   Now  this 

indenture  uritnesseth,  that  in  consideration  of  dollars, 

he,  the  vendor,  doth  hereby  assign  unto  the  purchaser  all  that  the  said 
license  and  the  full  benefit  thereof;  to  hold  the  same  unto  the  purchaser 
and  his  assigns  subject  to  the  covenants  and  conditions  therein  con- 
tained, aYid  henceforth  on  the  part  of  the  license  to  be  performed  or 
observed:  and  the  vendor  doth  hereby  covenant  with  the  purchaser 
that,  notwithstanding  anything  by  him  done  or  omitted  or  knowingly 
suffered,  the  said  license  is  now  valid  and  subsisting  and  not  void 
or  voidable,  and  that  all  the  royalties  reserved  by  the  said  license  have 
been  paid  up  to  the  day  of  last,  and 

that  all  the  covenants  and  conditions  therein  contained,  and  on  the 
part  of  the  licensee  to  be  observed  and  performed,  have  been  observed 
and  performed  tip  to  this  present  time;  and  the  purchaser  doth 
hereby  covenant  with  the  vendor  that  he  uoill,  as  from  the  said 
day  of  last,  pay  the  royalties  and  other 

sums  by  the  said  license  reserved,  and  also  will  perform  and  observe 
all  the  covenants  and  conditions  therein  contained  and  on  the  part 
of  the  licensee  hencejorth  to  be  performed,  and  keep  the  vendor  indem- 
nified against  all  actions,  claims,  and  expenses  in  respect  of  the  said 
royalties,  sums,  covenants,  and  conditions,  or  any  of  them  respec- 
tively. 

In  witness,  etc. 


PATENTS. 

Patentable  Invention — The  Application — Caveats — Infringement. 

THE  subject  of  patents,  trade-marks  and  copyrights,  although 
more  or  less  technical,  is,  nevertheless,  of  general  import- 
ance and  easily  understood.  We  will,  therefore,  direct 
our  attention  to  a  brief  analysis  of  the  fundamental  principles 
underlying  this  interesting  and  practical  branch  of  the  law. 

Article  I,  Section  8,  of  the  Constitution  of  the  United  States 
vests  in  Congress  the  power  to  promote  the  progress  of  science 
and  the  useful  arts  by  securing  for  limited  times  to  inventors  the 
exclusive  right  to  their  respective  discoveries,  which  power 
forms  the  foundation  of  our  patent  system.  In  pursuance  of  the 
authority  vested  in  it  by  the  Constitution,  Congress  has  enacted 
various  laws  from  time  to  time,  the  principal  statute  now  in 
force  being  Section  4886  of  the  Revised  Statutes,  which  provides 
as  follows: 

"Any  person  who  has  invented  or  discovered  any  new  and 
useful  art,  machine,  manufacture  or  composition  of  matter,  or 
any  new  and  useful  improvement  thereof,  not  known  or  used  by 
others  in  this  country,  and  not  patented  or  described  in  any 
printed  publication  in  this  or  any  foreign  country  before  his 
invention  or  discovery  thereof,  and  not  in  public  use  or  on  sale 
for  more  than  two  years  prior  to  his  application,  unless  the  same 
is  proved  to  have  been  abandoned,  may,  upon  payment  of  the 
fees  required  by  law  and  other  due  proceedings,  obtain  a  patent 
therefor." 

Discovery  and  Invention. 

The  word  "discovery"  as  used  in  the  patent  laws  is  s)m- 
onymous  with  the  word  "invention."  Laws  of  nature  can  never 
be  invented  by  man,  although  they  may  be  discovered.  When 
discovered  they  may  be  utilized  by  means  of  an  art,  a  machine, 
a  manufacture  or  composition  of  matter.  Any  idea  which  is 
new  and  useful,  and  which  is  the  product  of  some  exercise  of 
the  inventive  faculties,  is  patentable.  Every  invention  which  is 
new  and  useful  is  not.  however,  patentable.  A  mere  change  of 
form,  for  example,  does  not  constitute  patentable  invention.  To 
illustrate,  changing  the  body  of  a  coal  car  from  rectangular  form 

(387) 


288  PATENTS 

to  conoidal  form  is  not  invention,  because  such  change  of  form 
is  only  an  apphcation  to  the  art  of  constructing  car  bodies  of  a 
principle  of  construction  which  was  well  knQwn  in  other  arts. 
It  may  be  stated  as  a  general  rule  that  a  mere  change  of  size  is 
not  a  patentable  invention,  but  in  the  case  of  the  invention  of 
the  safety  lamp  by  Sir  Humphry  Davy  the  changing  of  the  size 
of  the  perforations  in  the  lantern  case  produced  an  entirely  new 
and  useful  result,  which  entitled  the  inventor  to  protection.  Or- 
dinarily a  mere  change  of  proportions  will  not  be  patentable. 
Under  certain  circumstances  such  a  change  may  be  protected. 
Consider  the  case  of  combining  India  rubber  and  sulphur. 
Charles  Goodyear  discovered  that  when  crude  India  rubber  was 
combined  with  sulphur  in  small  quantities,  and  the  compound 
heated,  it  became  what  is  known  as  soft  vulcanized  rubber,  the 
properties  of  which  were  pliability  and  extensibility,  the  changed 
product  being  less  affected  by  the  heat  and  cold  than  crude  rub- 
ber. Nelson  Goodyear  discovered  later  that  if  the  proportions 
of  the  same  two  materials  were  changed  by  increasing  the  sul- 
phur to  twenty-five  per  cent,  and  upward  of  the  rubber,  the 
compound  upon  being  heated  lost  the  soft,  pliable  quality  of 
crude  rubber  and  assumed  the  properties  of  horn,  being  non- 
extensible  and  susceptible  of  being  polished.  Such  a  substance 
is  known  as  hard  rubber  or  vulcanite,  and,  although  involving  a 
mere  change  of  proportions,  was  held  to  be  patentable.  It  must 
be  borne  in  mind,  however,  that  if  the  change  in  proportions 
effects  no  change  in  the  properties  of  the  compound,  or  in  its 
mode  of  operation,  then  the  change  is  not  entitled  to  protection 
by  patent. 

A  mere  change  of  material  does  not  entitle  the  inventor  to 
protection  under  our  patent  laws,  but  if  such  change  imparts  to  a 
machine  or  device  of  any  kind  a  new  quality  or  property  not 
previously  possessed  the  same  would  be  patentable.  For  exam- 
ple, the  rolls  on  the  old-fashioned  wringers  or  washing  machines 
used  to  be  covered  with  cloth  or  felt,  both  of  which  were  more 
or  less  elastic.  The  idea  was  conceived  of  covering  the  rolls  with 
rubber,  which  was  not  only  elastic,  but  also  impermeable  to 
water;  this  invention  was  of  course  a  mere  change  of  material, 
but  gave  to  the  machine  such  additional  properties  of  general 
usefulness  that  it  was  held  to  be  patentable. 

Things  not  Patentable. 

The  mere  change  of  location  in  the  parts  of  a  machine  is  not 
patentable,  but  if  such  change  introduces  a  new  mode  of  opera- 


PATENTS  289 

tion  into  the  particular  class  of  machines  in  which  the  change  is 
made,  or  dispenses  with  part  of  an  old  mechanism,  the  inventor 
is  entitled  to  a  patent.  A  mere  application  of  an  old  thing  to  a 
new  purpose,  or  a  double  use  of  an  old  thing,  is  not  patentable. 
As  the  term  "patentable  invention"  is  of  such  broad  significance, 
we  can  better  understand  what  is  patentable  by  considering  what 
is  not.  There  are  instances  in  which  a  change  of  application 
of  an  old  thing  to  a  new  purpose  amounts  to  patentable  invention. 
For  illustration,  the  annealing  of  articles  of  metal  by  first  heating 
them  to  a  sufficient  temperature  long  enough  to  permit  the 
molecules  to  assume  the  same  condition  throughout  the  mass, 
and  by  then  compelling  or  permitting  them  to  cool  slowly,  had 
been  well  known  for  a  long  time,  and  among  such  articles  were 
the  metallic  specula  of  reflecting  telescopes,  which  had  been 
taken  hot  from  the  molds  in  which  they  were  cast,  put  into  a 
heated  oven  and  had  been  permitted  to  cool  slowly  therein.  With 
such  knowledge  in  existence  Whitney  patented  a  process  for  an- 
nealing the  chilled  cast-iron  wheels  of  railroad  cars.  A  new  and 
previously  unknown  result  is  obtained,  namely,  the  relief  of  the 
plate  of  the  wheels  from  inherent  strain  without  impairing  the 
chilled  tread — a  result  which  had  not  been  obtained  before  Whit- 
ney's invention.  This  example  shows  that  when  an  old  thing  is 
applied  so  as  to  obtain  a  new  result  (the  production  of  a  chilled 
car  wheel  free  from  internal  strains),  the  change  or  thing  done 
is  not  a  mere  application  of  an  old  process  to  a  new  or  different 
thing,  but  is  an  invention  which  should  be  protected  by  a  patent. 

An  invention  comprising  the  substitution  of  one  old  device 
for  another  is  not  patentable,  when  the  substituted  device  does 
no  more  than  the  device  which  it  replaces.  Thus  the  substitution 
of  a  circular  saw  in  a  shingle-sawing  machine  for  the  old-fash- 
ioned perpendicular  saw  was  held  to  be  patentable,  on  the  ground 
that  it  was  a  most  practical  improvement,  was  useful  and  had  not 
been  known  or  used  before. 

It  is  a  well-settled  principle  of  patent  law  that  there  is  no 
invention  in  the  mere  duplication  of  old  devices.  Where  a  new 
mode  of  operation  is  affected  by  duplication,  the  invention  may 
be  patented. 

Under  Section  4929,  of  the  Revised  Statutes,  as  amended 
May  9,  1902,  any  person  who  has  invented  any  new,  original  and 
ornamental  design  for  an  article  of  manufacture,  may,  subject 
to  certain  conditions  and  limitations,  obtain  a  patent  therefor. 

A  useful  art,  as  distinguished  from  the  liberal,  polite  or  fine 
arts,  is  a  mode  of  treatment  of,  or  a  method  or  way  of  operating 

19 


290  PATENTS 

upon  an  object  by  which  a  change  in  its  form,  quality  or  proper- 
ties is  produced.  This  art  includes  what  are  commonly  called 
methods  or  processes,  whether  they  be  simple  or  compound. 

Basic  Idea  of  the  System. 

The  patent  system  was  founded  for  the  purpose  of  stimu- 
lating improvements  in  the  useful  arts  and  sciences,  by  giving  to 
inventors  a  monopoly  upon  the  subject  matter  of  the  invention. 
The  principal  elements  of  a  patentable  invention  is  that  it  must 
be  new  and  useful.  As  to  the  extent  of  the  change  that  is  re- 
quired to  constitute  invention,  the  Courts  have  held  that  it  is 
of  no  consequence  whether  the  invention  be  simple  or  compli- 
cated, whether  it  be  the  result  of  accident  or  of  long  and 
laborious  thought,  or  by  an  instantaneous  flash  of  the  mind.  The 
law  looks  to  the  facts  and  not  to  the  process  by  which  it  is  accom- 
plished. It  gives  the  first  inventor  or  discoverer  the  exclusive 
right  to  use  it,  and  asks  nothing  as  to  the  mode  or  extent  of  the 
application  of  his  genius  to  conceive  or  execute  it.  Many  of 
the  patents  or  inventions  which  have  been  upheld  are  such  slight 
changes  from  former  modes  or  machines  as  to  be  tested  in  their 
material  diversity  chiefly  by  their  results,  such  as  the  flame  of 
gas  rather  than  oil;  the  hot  blast  rather  than  the  cold,  charcoal 
used  in  making  sugar,  hot  water  in  place  of  cold  in  making 
cloth.  If  in  a  patented  improvement  a  new  and  useful  result 
has  been  attained,  neither  the  simplicity  of  the  structure,  nor  the 
greater  or  lesser  amount  of  intellect  employed  are  of  importance 
in  determining  the  validity  of  the  invention. 

The  law  protects  an  inventor  in  the  use  of  his  invention  for 
the  period  of  seventeen  years  from  its  date.  Applications  for 
letters  patent  of  the  United  States  must  be  made  to  the  Commis- 
sioner of  Patents,  and  must  be  signed  by  the  inventor,  if  alive. 
It  is  well  before  incurring  the  expense  of  an  application  to  have 
a  preliminary  search  made,  which  can  be  done  at  a  very  nominal 
cost.  Any  patent  or  other  reference  which  would  constitute  an 
anticipation  of  the  inventor's  idea  will  be  developed  in  such 
search,  and  the  patentability  of  the  invention  determined. 

A  complete  application  comprises  a  petition,  specification, 
oath  and  drawings.  A  model  is  sometimes,  though  rarely,  re- 
quired. The  petition  must  be  addressed  to  the  Commissioner  of 
Patents  and  must  set  forth  the  name,  present  nationality,  resi- 
dence and  present  postoffice  address  of  the  petitioner,  and 
request  the  grant  of  a  patent  for  the  inventor,  and  not  of  an 


PATENTS  291 

assignee  of  the  inventor,  although  it  may  request  that  the  patent, 
when  granted,  shall  be  granted  to  an  assignee. 

Specifications. 

The  specification  is  a  written  description  of  the  invention  or 
discovery,  and  of  the  manner  and  process  of  making,  construct- 
ing, compounding  and  using  the  same,  and  is  required  to  be  in 
such  full,  clear,  concise  and  exact  terms  as  to  enable  any  person 
skilled  in  the  art  or  science  to  which  the  invention  or  discovery 
appertains,  or  with  which  it  is  most  nearly  connected,  to  make, 
construct,  compound  and  use  the  same.  It  is  further  required 
that  in  the  specification  must  be  set  forth  the  precise  invention  for 
which  a  patent  is  solicited,  and  explain  the  principle  thereof,  and 
the  best  mode  in  which  the  applicant  has  contemplated  applying 
that  principle,  in  such  manner  as  to  distinguish  it  from  other 
inventions.  In  a  case  of  a  mere  improvement,  the  specification 
must  particularly  point  out  the  parts  to  which  the  improvement 
relates,  and  must  in  explicit  language  distinguish  between  what 
is  old  and  what  is  claimed  as  new ;  the  description  and  drawings, 
as  well  as  the  claims,  should  be  confined  to  the  specific  improve- 
ment and  such  parts  as  necessarily  co-operate  with  it.  The 
specifications  must  conclude  with  a  specific  and  distinct  claim 
or  claims  of  the  part,  improvement  or  combination  or  discovery. 
When  there  are  drawings  the  description  will  refer  to  the  dif- 
ferent views  by  figures,  and  to  the  diflferent  parts  by  letters  or 
numerals.  The  rules  of  practice  of  the  United  States  Patent 
Office  require  that  the  following  order  of  arrangement  should 
be  observed  in  framing  the  specification: 

1.  Preamble  stating  the  name  and  residence  of  applicant 
and  title  of  the  invention : 

2.  General  statement  of  the  object  and  nature  of  the 
invention ; 

3.  Brief  description  of  the  several  views  of  the  drawings; 

4.  Detailed  description; 

5.  Claim  or  claims; 

6.  Signature  of  inventor; 

7.  Signatures  of  two  witnesses. 

It  is  not  necessary  that  an  applicant  should  be  represented 
by  an  attorney,  but  in  view  of  the  fact  that  the  value  of  the 
patent,  as  a  monopoly,  depends  upon  the  care  with  which  the 
claims  are  drawn,  it  is  advisable  to  employ  an  attorney,  whose 
technical  knowledge  and  experience  qualify  him  to  better  protect 


292  PATENTS 

the  invention.  An  inventor  may,  by  directing  a  letter  to  the 
Commissioner  of  Patents,  secure  a  copy  of  the  rules  of  practice 
of  the  Patent  Office,  with  forms  for  the  different  parts  of  an 
application. 

Two  or  more  independent  inventions  cannot  be  claimed  in 
one  application,  but  where  distinct  inventions  are  dependent  upon 
each  other  and  mutually  contribute  to  produce  a  single  result, 
they  may  be  claimed  in  one  application.  If  several  inventions 
claimed  in  a  single  application,  be  of  such  a  nature  that  a  single 
patent  may  not  be  issued  to  cover  them,  the  inventor  will  be 
required  to  limit  the  description,  drawing  and  claim  of  the  pend- 
ing application  to  whichever  invention  he  may  elect.  The  other 
inventions  may  be  made  the  subjects  of  separate  applica- 
tions, which  must  conform  to  the  rules  applicable  to  original 
applications. 

Applicant's  Oath. 

The  oath  is  a  very  necessary  part  of  every  patent  applica- 
tion. The  applicant  must  make  oath  or  affirmation  that  he 
verily  believes  himself  to  be  the  original  and  first  inventor  or 
discoverer  of  the  art,  machine,  manufacture,  composition  or 
improvement  for  which  he  solicits  a  patent;  that  he  does  not 
know  and  does  not  believe  that  the  same  was  ever  before  known 
or  used,  and  shall  state  of  what  country  he  is  a  citizen,  and  where 
he  resides,  or  whether  he  is  a  sole  or  joint  inventor  of  the  inven- 
tion claimed  in  his  application.  In  every  original  application 
the  applicant  must  distinctly  state  under  oath  that  the  invention 
has  not  been  patented  to  himself  or  others  with  his  knowledge  or 
consent  in  the  United  States  or  any  foreign  country  for  more 
than  two  years  prior  to  his  application  for  a  patent  filed  in  any 
foreign  country  by  himself  or  his  legal  representatives  or  assigns 
more  than  twelve  months  prior  to  his  application. 

Whenever,  the  nature  of  an  invention  admits  of  it,  a  draw- 
ing must  be  furnished  by  the  applicant.  A  model  is  only  required 
when  the  examiner  of  the  application  is  unable  to  fully 
understand  the  operation  of  the  invention  from  the  drawings. 

Applications  filed  in  the  Patent  Office  are  classified  accord- 
ing to  their  various  arts  and  are  taken  up  for  examination  in 
their  regular  order  of  filing.  The  applicant  is  notified  at  the 
proper  time  whether  or  not  his  application  is  accepted  or  rejected. 

If  rejected,  the  reasons  will  be  fully  and  precisely  stated  and 
such  information  and  references  will  be  given  as  will  be  useful 
in  aiding  the  applicant  to  judge  of  the  propriety  of  prosecuting 
his  application  or  of  altering  his  specification. 


PATENTS  293 

The  applicant  has  the  right  to  amend  before  or  after  the 
first  rejection  or  action;  and  he  may  amend  as  often  as  the 
examiner  presents  new  references  or  reasons  for  rejection.  An 
amendment  must  be  filed  within  one  year  after  the  last  rejection 
by  the  Patent  Office,  otherwise  the  application  becomes  forfeited. 

Costs. 

Every  application  for  a  patent  must  be  accompanied  by  a 
payment  of  fifteen  dollars  as  a  filing  fee  to  the  government. 
After  an  application  has  been  allowed,  a  final  fee  of  twenty  dollars 
must  be  paid  at  any  time  within  six  months  after  receiving  formal 
notice  of  allowance.  The  cost  of  drawings  and  attorney's  fee 
vary  according  to  the  nature  of  the  invention.  The  average  cost 
of  a  patent,  including  a  preliminary  search,  is  about  eighty-five 
or  ninety  dollars. 

Reissue  of  Patents. 

The  law  provides  that  a  patent  may  be  surrendered  and 
reissued  to  the  original  patentee,  his  legal  representatives  or  as- 
signs, whenever  the  original  patent  is  inoperative  or  invalid  by 
reason  of  a  defective  or  insufficient  specification,  or  by  reason 
of  the  patentee  claiming  as  his  invention  or  discovery  more  than 
he  had  a  right  to  claim  as  new,  provided  the  error  arises  from 
accident  or  mistake. 

An  inventor,  upon  filing  his  application,  should  mark  his 
machine  or  device  "Patent  Applied  For."  He  cannot  sue  for 
damages  for  the  infringement  of  his  invention  until  the  patent 
has  issued,  but  the  above  marking  serves  as  a  notice  to  the  public 
that  protection  is  sought.  Thus  a  possible  infringer  would  be 
warned  not  to  commence  the  manufacture  of  the  invention, 
because  he  could  be  prohibited  from  selling  same  as  soon  as  the 
patent  has  issued. 


BANKS  AND  BANKING. 

Subjects  Deiincd — Deposits — Loans  and  Discounts — Certified 
Checks — Officers  and  Agents — Savings  Banks — Clearing 
House. 

FROM  a  practical  standpoint  there  is  no  subject  of  greater 
importance  to  the  business  public  than  that  of  banks  and 
banking,  and  we  will  therefore  direct  our  attention  briefly 
to  an  inquiry  of  the  general  principles  regulating  this  branch 
of  business. 

A  bank  has  been  legally  defined  as  an  institution  for  the 
deposit  of  money,  with  power  to  issue  its  promissory  notes,  in- 
tended to  circulate  as  money  (known  as  bank  notes)  or  to  receive 
the  money  of  others  on  general  deposit ;  to  form  a  joint  fund 
that  shall  be  used  by  the  institution  for  its  own  benefit,  for  one 
or  more  of  the  purposes  of  making  temporary  loans  and  dis- 
counts ;  of  dealing  in  foreign  and  domestic  bills  of  exchange, 
coin,  bullion,  credits,  and  the  remission  of  money ;  and  with  privi- 
leges in  addition  to  these  powers  of  receiving  deposits  and  mak- 
ing collections  for  the  holders  of  negotiable  paper.  At  common 
law  banking  is  open  to  every  individual  and  originally  consisted 
only  in  receiving  deposits,  such  as  bullion,  plate  and  the  like,  for 
safe  keeping,  until  the  depositor  should  see  fit  to  draw  it  out  for 
use ;  but  the  business  was  gradually  extended  to  include  the  dis- 
counting of  bills  and  notes  and  the  loaning  of  money  on  mort- 
gage, pawn,  or  other  security,  and  in  recent  times  to  the  issuing 
of  notes  of  their  own  intended  to  circulate  as  currency  or  a 
medium  of  exchange  instead  of  gold  and  silver. 

As  a  matter  of  public  protection,  the  Legislatures  of  prac- 
tically every  State  have  forbidden  individuals  or  firms  from  en- 
gaging in  the  banking  business  unless  they  conform  to  the 
particular  laws  relating  thereto.  In  common  parlance  a  bank 
is  understood  to-day  to  be  a  corporation  authorized  by  either 
the  National  or  State  Government  to  conduct  the  banking  busi- 
ness or  the  business  of  establishing  a  common  fund  for  lending 
money,  discounting  notes,  issuing  bills,  receiving  deposits,  col- 
lecting the  money  on  notes  deposited  and  negotiating  bills  of 
exchange.  Should  several  individuals  assume  to  engage  in 
banking  without  complying  with  the  law,  hold  meetings,  elect 

(294) 


BANKS  AND  BANKING  995 

directors  and  the  like,  they  may  be  held  civilly  liable  -as  partners 
and  criminally  liable  as  individuals. 

In  Pennsylvania  a  banking  department  is  established  by 
statute,  the  duties  of  which  are  to  take  care  that  the  laws  of  this 
Commonwealth  in  relation  to  banks  and  banking  companies,  co- 
operative banking  associations,  trust,  safe  deposit,  real  estate, 
mortgage,  title  insurance,  guarantee,  surety  and  indemnity  com- 
panies, and  all  other  companies  of  a  similar  character,  having 
power  to  receive  money  on  deposit,  shall  be  faithfully  executed. 

Deposits. 

A  bank  is  not  bound  to  receive  on  deposit  the  money  and 
funds  of  every  person  who  offers,  but  may  arbitrarily  select  its 
customers  from  among  those  that  apply.  Statutes  in  many  States 
impose  certain  restrictions  on  this  power  of  discrimination.  Dis- 
counting or  loaning  money,  with  a  deduction  of  the  interest  in 
advance,  is  a  part  of  the  general  business  of  banking,  and, 
although  a  bank  is  no  more  exempt  from  the  operation  of  the 
usury  laws  than  an  individual,  yet  it  has  been  held  that  taking 
the  legal  interest  upon  loans  in  advance  is  not  usurious. 

Deposits  made  with  bankers  are  either  general  or  special. 
A  special  deposit  is  where  something  is  placed  in  the  charge  or 
custody  of  the  bank,  of  which  specific  restitution  must  be  made. 
A  general  deposit  is  said  to  amount  to  a  mere  loan,  and  the  bank 
is  to  restore  not  the  same  money,  but  an  equivalent  sum,  when- 
ever it  is  demanded.  As  regards  general  deposits,  the  relation 
of  banker  and  customer  is  that  of  debtor  and  creditor.  But  in 
the  case  of  a  special  deposit  the  bank  is  merely  the  bailee  of  the 
depositor  and  has  no  authority  to  use  the  thing  deposited.  Where 
valuables  are  deposited  as  collateral  for  a  loan,  the  bank  is  only 
bound  to  take  ordinary  care  of  them,  aftd  accordingly  will  not 
be  held  liable  where  burglars  break  in  and  steal  the  securities, 
in  the  absence  of  gross  negligence. 

It  may  be  stated  that  a  bank  has  a  general  lien  on  all  moneys, 
funds  and  paper  securities  of  a  depositor  in  its  possession  for 
the  amount  of  the  general  balance.  A  bank  has  the  right  to  set 
oflF  as  against  a  deposit  only  where  the  individual  who  is  both 
depositor  and  debtor  stands  in  both  these  characters  alike,  in 
precisely  the  same  relation  toward  the  bank.  Hence  an  individual 
deposit  cannot  be  set  off  against  a  partnership  debt. 

A  deposit  in  forged  bills  or  counterfeit  coin  creates  no  in- 
debtedness, although  credited  to  the  depositor's  account;  pay- 


296  BANKS  AND  BANKING 

ment  in  such  could  not  discharge  a  debt  and  cannot  create  one. 
A  bank  is  bound  to  know  its  own  notes,  and  where  it  receives 
and  gives  credit  for  notes  purporting  to  be  its  own  it  cannot, 
after  the  lapse  of  a  reasonable  time,  repufliate  them  on  the 
ground  that  they  were  forged  or  fraudulently  altered. 

The  entry  in  a  bank  book  by  the  proper  officer  of  the  amount 
and  date  of  the  deposit  is  prima-facie  evidence  that  the  bank 
received  the  amount  and  binds  the  bank  the  same  as  any  other 
form  of  receipt.  However,  the  entry  is  only  a  receipt,  and  is 
open  to  explanation,  and  if  shown  to  be  a  mistake  is  no  longer 
binding  upon  the  bank.  Likewise  the  receipt  is  open  to  correction 
by  the  depositor  if  shown  to  be  erroneous. 

A  certificate  of  deposit  is  the  written  acknowledgment  of 
the  bank  that  it  has  received  from  a  certain  person  a  certain 
sum  on  deposit.  Ordinarily  it  is  a  simple  receipt  of  the  bank,  in 
negotiable  form,  for  so  many  dollars,  and  has  been  held  to  be  in 
fact  equivalent  to  a  promissory  note.  In  Pennsylvania  the  au- 
thorities are  somewhat  to  the  contrary  of  this  doctrine,  our 
Supreme  Court  having  held  that  a  certificate  of  deposit  is  not  a 
promissory  note  so  as  to  make  an  indorser  liable  on  his  indorse- 
ment to  the  holder,  but  is  a  special  agreement  to  pay  the  deposit 
to  anyone  who  should  present  the  certificate  and  the  depositor's 
order. 

The  certifying  of  a  check  is  in  effect  merely  an  acceptance 
and  creates  no  trust  in  favor  of  the  holder,  and  no  lien  on  any 
particular  assets  of  the  bank  which  certifies  it.  In  using  deposits 
made  for  the  purpose  of  having  them  applied  to  a  particular  pur- 
pose, the  bank  acts  as  the  agent  of  the  depositor,  and  if  it 
failed  to  apply  it  at  all,  or  misapply  it,  it  can  be  recovered  as  a 
trust  deposit.  Deposits  made  by  trustees,  executors,  administra- 
tors, etc.,  are  regarded  as  general  deposits,  and  if  the  bank  fails 
to  pay  them,  the  beneficiaries  have  no  peculiar  claims  or  rights 
over  other  creditors.  They  must  share  like  other  general  deposi- 
tors. The  deposit  of  mortgages  and  other  special  instruments 
for  collection  or  the  drawing  of  a  draft  on  a  debtor  and  giving 
it  with  specific  instructions  to  collect  and  remit,  constitute  a 
trust  transaction,  and  the  money,  if  collected,  becomes  a  trust 
fund,  which  must  be  paid  in  case  of  the  failure  of  a  bank  before 
general  depositors. 

Trust  Funds. 

When  commercial  paper  is  received  for  collection  a  trust 
relation  exists.     This  relation  may  be  changed  by  agreement  or 


BANKS  AND  BANKING  297 

custom  into  that  of  debtor  and  creditor  after  the  collection  of 
the  proceeds,  but  a  bank  cannot  divest  itself  of  the  trust  relation 
at  its  own  convenience. 

Quite  frequently  trustees  mingle  a  trust  fund  or  several 
trust  funds  with  their  own  deposit  in  an  individual  account. 
Such  conduct,  although  criticised  by  the  Courts,  is  not  in  fact 
wrongful,  and  a  bank,  although  knowing  that  this  is  done,  is  not 
at  fault.  The  circumstance,  however,  is  suspicious  and  should 
impel  the  institution  to  exercise  caution  in  the  payment  of  checks 
drawn  against  such  mingled  funds.  If  a  bank  learns  that  a 
trustee  is  committing  a  breach  of  trust  by  an  improper  with- 
drawal of  funds  or  participates  in  the  fraud,  it  becomes  liable. 
The  weight  of  authority  throughout  the  United  States  is  to  the 
effect  that  if  a  bank  receives  a  check  payable  to  a  depositor  as  a 
trustee  and  credits  it  to  his  personal  account  and  permits  him  to 
draw  it  out  on  his  personal  check,  it  is  liable  with  him  for  a 
breach  of  the  trust. 

The  law  presumes  that  a  deposit  belongs  to  the  person  in 
■whose  name  it  is  entered,  and  the  bank  cannot  question  his  right 
thereto.  The  Supreme  Court  of  Pennsylvania  has  frequently 
decided  that  if  a  deposit  in  the  name  of  one  can  be  claimed  by 
another,  the  burden  of  proof  is  on  such  other  to  establish  his  or 
her  ownership.  If,  therefore,  a  deposit  is  attached  either  because 
its  title  is  claimed  by  another  or  to  secure  a  debt  due  from  the 
depositor  to  the  attaching  creditor,  the  bank  should  do  nothing 
until  the  Court  has  made  an  order  naming  the  person  to  whom 
the  bank  should  pay. 

A  bank  being  in  law  a  debtor,  is  absolutely  liable  for  the 
loss  of  a  general  deposit,  although  such  loss  occur  by  events 
wholly  beyond  its  control,  but  if  the  bank  fail,  a  general  depositor 
is  not  a  preferred  creditor  in  the  absence  of  special  statute. 

Power  to  make  collections  upon  business  paper  is  incidental 
to  the  banking  business.  A  bank  upon  accepting  the  agency  for 
this  purpose  is  bound  to  exercise  reasonable  care  and  diligence 
in  the  discharge  of  its  assumed  duties.  The  measure  of  damages 
resulting  from  its  neglect  of  duty  will  be  the  amount  of  actual 
loss  the  party  interested  has  sustained.  When  a  bank  receives  a 
note  for  collection,  it  is  bound  to  use  reasonable  skill  and  dili- 
gence in  making  the  collection,  and  for  that  purpose  is  bound 
to  make  a  reasonable  demand  on  the  promisor,  and  in  case  of 
dishonor  to  give  due  notice  to  the  indorsers,  so  that  the  security 
of  the  holder  shall  not  be  lost  or  essentially  impaired  by  the 
discharge  of  the  indorsers.    The  bank  must  use  due  diligence  in 


298  BANKS  AND  BANKING 

taking  all  necessary  steps  by  presentment,  demand,  protest  and 
notice,  to  fix  the  liability  of  all  the  parties  to  whom  its  principal 
has  a  right  to  resort  for  payment;  and  if  the  bank  fail  in  any 
of  these  duties,  it  becomes  liable  in  damages.  Instructions  given 
to  a  bank  taking  a  note  or  bill  for  collection,  where  the  collection 
is  to  be  made  in  a  distant  place,  must  be  transmitted  to  its  corre- 
spondent. If  a  note  is  payable  at  the  bank  to  which  it  is  indorsed 
for  collection  no  demand  is  necessary. 

After  collection,  the  bank  may  either  keep  the  money  sepa- 
rate from  its  other  funds,  as  a  special  deposit,  for  which  it  will 
be  liable  as  a  mere  bailee,  after  notice  to  the  owner,  or  it  may 
place  the  amount  to  the  depositor's  credit,  and  mingle  it  with 
its  other  funds,  when  it  will  be  liable  to  the  holder,  as  a  simple 
contract  debtor. 

How  far  a  bank  is  liable  for  the  negligence  of  a  corre- 
spondent bank  to  which  it  has  sent  commercial  paper  to  be  col- 
lected is  a  question  upon  which  there  is  a  great  conflict  of 
authority.  It  is  held,  on  the  one  hand,  that  the  bank  first  re- 
ceiving the  paper  is  answerable  for  the  neglect,  omission  or 
other  misconduct  of  the  bank  or  agent  it  may  employ,  following 
the  general  rule  of  law  that  an  agent  is  liable  for  the  acts  of  a 
sub-agent  employed  by  him.  This  is  the  doctrine  established 
by  the  decisions  of  the  Supreme  Court  of  the  United  States  and 
the  Courts  of  several  other  States.  But  it  is  held,  on  the  other 
hand,  that  the  liability  of  a  bank  taking  a  note  or  bill  for  collec- 
tion which  is  payable  at  a  distance  extends  merely  to  the  selection 
of  a  suitable  and  competent  agent  at  the  place  of  payment,  and 
to  the  transmission  of  the  paper  to  such  agent  with  proper  in- 
structions, and  that  the  correspondent  bank  is  the  agent  of  the 
holder,  and  that  the  transmitting  bank  is  not  liable  for  the  de- 
faults of  its  correspondent  when  selected  with  due  care.  This 
doctrine  has  been  adopted  by  the  Courts  of  Pennsylvania,  and  is 
approved  by  the  leading  text-book  writers. 

The  Subject  of  Loans. 

When  a  bank  has  issued  a  letter  of  credit  to  a  correspondent 
bank  announcing  a  credit  for  a  stated  sum  for  the  use  of  the 
holder  of  the  letter,  it  cannot,  after  learning  of  the  insolvency 
of  the  bank  to  which  the  letter  is  directed,  retain  the  funds  for  a 
debt  due  therefrom.  A  letter  of  credit  is  a  guaranty,  and  a 
bank  can  ordinarily  recover  for  all  advances  made  thereon  in 
good  faith  and  within  the  terms  of  the  letter  of  credit. 


BANKS  AND  BANKING  299 

Loans  and  Discounts. 

The  majority  of  questions  regarding  the  authority  of  banks 
to  make  loans  resolve  themselves  into  an  interpretation  of  the 
charter  organizing  the  bank  or  statutes  regulating  its  operations. 
Power  to  lend  must  be  defined  by  positive  law,  and,  when  no 
prohibitory  statute  exists,  a  commercial  bank  can  lend  money  on 
real  estate  security,  and  a  bank  having  authority  to  lend  on 
public  stocks,  on  bonds  and  mortgages,  or  on  any  other  securi- 
ties deemed  ample  by  the  board  of  directors,  can  also  discount 
on  commercial  paper.  The  purchase  of  a  promissory  note  for 
less  than  its  face  value  is  a  discount,  but  one  taken  in  payment 
of  a  pre-existing  debt  is  not.  It  is  well  settled  that  when  a  note 
is  purchased  or  discounted  the  bank  does  not  become  the  owner 
until  it  has  paid  therefor,  and  until  then  its  possession  is  a  bail- 
ment, and  it  cannot  apply  the  proceeds  to  extinguish  other  in- 
debtedness of  the  borrower  without  his  consent.  However,  if 
the  borrower  should  fail  before  he  draws  his  money  the  note  can 
be  tendered  back  and  the  money  retained,  and  a  bank  will  not 
be  liable  to  the  holder  of  a  check  representing  the  amount  which 
was  not  presented  before  the  holder's  failure.  In  discounting  a 
negotiable  note  a  bank  is  not  required  to  exercise  care  to  ascertain 
whether  there  are  equities  or  defenses. 

If  a  bank  is  prohibited  from  lending  to  its  officers,  a  loan 
to  a  firm,  a  member  of  which  is  a  director  of  the  bank,  is  not  a 
violation  of  the  law.  But  if  the  charter  of  a  bank  provides 
that  only  such  loans  can  be  made  to  directors  as  the  by-laws 
shall  authorize  and  a  loan  is  made  to  a  director  without  any 
by-law  regulating  the  condition,  the  loan  is  void  and  the  money 
cannot  be  recovered. 

If  a  State  lends  money  to  a  bank  on  bonds  it  has  power  to 
guarantee  them.  A  person  who  has  borrowed  money  from  a 
bank  cannot  avoid  payment  on  the  ground  that  his  loan  was  not 
made  by  a  quorum  of  directors  as  required  by  law. 

It  is  important  to  observe  that  a  bank  cannot  lend  its  credit 
to  another,  or  pledge  its  property  to  secure  the  debt  of  another, 
if  it  has  no  interest  therein.  When  loans  have  been  made  by 
banks,  which  loans  are  unauthorized,  the  weight  of  authority  is 
to  the  effect  that  such  loans  should  be  paid  by  the  debtors  and 
that  the  lenders  who  have  oflFended  in  making  such  unauthorized 
loans  should  be  puni.shed  in  some  other  way  than  by  withdrawing 
the  aid  of  the  Court  to  enforce  payment.  Where  money  is  left 
with  a  bank  to  be  loaned,  the  bank  is  an  agent  and  not  a  debtor, 


300  BANKS  AND  BANKING 

and  if  the  money  is  loaned  in  good  faith  and  the  bank  has 
exercised  reasonable  care  it  is  not  liable  to  the  borrower  should 
there  be  any  loss.  The  Courts  have  ruled  that  a  banker  who 
promises  to  exercise  careful  attention  in  conducting  the  business 
of  his  customers  is  bound  to  exercise  the  skill  usually  shown  by 
a  banker  in  loaning  money  for  a  customer,  even  though  the 
service  be  rendered  gratuitously;  but  a  failure  to  inquire  care- 
fully into  the  condition  of  a  borrower  would  not  be  negligence  if 
he  was  generally  believed  to  be  solvent  and  an  inquiry  would 
have  yielded  no  information. 

Security  for  Loans. 

Incidental  to  the  power  of  discounting  notes,  etc.,  is  the 
power  to  secure  loans  in  any  manner  which  is  not  prohibited  by 
law.  If  a  loan  is  illegal  this  fact  will  not  affect  the  titles  to  the 
securities  which  were  transferred  as  collateral  for  the  loan.  The 
borrower  cannot,  therefore,  while  retaining  the  money,  re- 
strain the  bank  from  negotiating  the  securities  or  obtain  their 
cancellation  or  returns. 

If  a  draft  is  discounted  by  a  bank  to  which  a  bill  of  lading, 
properly  indorsed,  is  attached,  a  special  property  on  the  merchan- 
dise described  in  the  bill  of  lading  passes  to  the  bank  as  security 
which  is  preserved  until  the  draft  is  accepted  and  paid.  In  many 
States  banks  have  been  forbidden  to  loan  money  on  the  security 
of  their  own  stock  and  where  a  statute  declares  that  a  bank  shall 
not  make  a  loan  or  discount  on  the  pledge  of  its  own  stock,  this 
means  directly  to  the  owner  and  does  not  forbid  a  discount  to  a 
third  party  who  has  no  interest  in  the  stock. 

Banks  are  ordinarily  permitted  to  take  mortgages,  to  secure 
debts  made  either  at  the  time  or  afterwards,  and  it  can  after- 
wards take  such  property  to  secure  its  debt  either  by  foreclosure, 
by  sale  on  execution,  or  by  other  process  for  the  purpose  of 
selling  it  at  better  advantage.  A  bank  which  is  forbidden  by  its 
charter  to  deal  or  trade  in  anything  except  bills  of  exchange, 
etc.,  is  not  forbidden  from  taking  an  assignment  of  a  rnortgage 
to  secure  a  debt  due  to  the  bank. 

Authority  is  given  in  many  States  to  a  bank  to  take  a  mort- 
gage on  land  to  secure  the  payment  of  its  stock,  and  such  mort- 
gages are  regarded  as  prior  to  mortgages  for  loans,  although 
both  may  be  made  in  the  same  instrument.  The  transfer  of  bank 
stock  subsequently  to  the  transfer  of  real  estate  subject  to  a 
mortgage  of  this  character  does  not  affect  the  mortgage  rights 
of  the  bank. 


BANKS  AND  BANKING  301 

A  note  made  in  one  State  and  discounted  in  another  is  gov- 
erned by  the  law  of  the  latter  State.  Regarding  the  interest  or 
rate  of  discount  which  a  bank  may  charge,  it  is  governed  by  the 
same  law  as  individuals.  The  laws  relating  to  usury  do  not  apply 
to  the  purchase  and  sale  by  a  bank  of  promissory  notes  and  other 
instruments.  As  a  matter  of  fact,  it  has  been  held  that  a  bank 
may  take  a  note  bearing  more  than  the  legal  rate  of  interest  as 
security  for  a  prior  debt,  although  this  right  is  not  at  all  free 
from  doubt.  A  new  note  or  bill  given  in  renewal  of  an  old  note 
or  balance  tainted  with  usury,  is  usurious. 

Checks. 

Although  it  has  been  held  that  a  depositor  can  withdraw 
his  deposit  without  a  written  order  as  a  strict  matter  of  right, 
it  is  the  universal  custom  of  banks  to  require  a  written  order 
from  the  depositor.  Until  a  check  has  been  presented  to  a  bank 
and  payment  refused  and  notice  of  dishonor  given  to  the  maker, 
the  holder  has  no  right  of  action.  In  view  of  the  fact  that  a 
check  is  a  written  contract,  oral  statements  cannot  be  used  as 
evidence  to  contradict  or  vary  the  check.  However,  as  between 
the  original  parties  to  the  check,  such  evidence  may  be  given  to 
solve  any  ambiguity,  as,  for  example,  to  show  what  bank  or  per- 
son was  intended,  or  to  show  in  what  capacity  the  drawer  or 
maker  signed.  Where  the  amount  stated  in  marginal  figures 
differs  from  the  words  in  the  body  of  the  check  the  latter  will 
govern. 

When  the  maker  of  a  check  has  no  funds  in  bank,  or  has 
withdrawn  them,  or  has  stopped  payment  of  the  check,  notice 
of  dishonor  is  unnecessary.  The  general  rule  of  law  is  that  the 
holder  of  a  check  cannot  fasten  liability  on  the  maker  until  he 
has  first  presented  the  check  to  the  bank  (drawee)  for  payment, 
and  has  given  prompt  notice  of  dishonor. 

It  should  be  most  carefully  borne  in  mind  that  the  holder  of 
a  check,  in  order  to  charge  the  drawer  in  case  of  a  dishonor, 
must  present  the  check  for  payment  within  a  reasonable  time, 
otherwise  the  delay  is  at  the  peril  of  the  holder.  What  is  a 
reasonable  time  will  depend  upon  circumstances,  and  will,  in 
many  cases,  depend  upon  the  time,  the  mode,  and  the  place  of 
receiving  a  check,  and  upon  the  relations  of  the  parties  between 
whom  the  question  arises.  A  majority  of  the  States  have  enacted 
negotiable  instrument  acts  which  regulate  this  question.  If  the 
bank  on  which  the  check  is  drawn  be  in  the  same  place  where 


302  BANKS  AND  BANKING 

the  payee  received  the  check,  it  should  be  presented  at  once 
for  payment  within  banking  hours  on  the  day  it  is  received,  or 
on  the  following  day.  If  in  the  meantime  the  bank  fails,  the  loss 
will  be  the  maker's.  A  check  is  generally  designed  for  immediate 
payment,  and  not  for  circulation ;  therefore  it  becomes  the  duty 
of  the  holder  to  present  it  for  payment  as  soon  as  he  reasonably 
may,  and  if  he  does  not,  he  keeps  it  at  his  own  peril.  If  the 
bank  is  not  in  the  same  place  where  the  payee  receives  the  check, 
then  it  must  be  forwarded  by  mail  on  the  next  secular  day  after 
it  is  received  for  presentment.  If  the  person  to  whom  it  is 
forwarded  presents  it  for  payment  on  the  day  after  it  has  reached 
him  by  due  course  of  mail,  it  will  be  sufficient. 

A  check  given  in  the  ordinary  course  of  business  for  a  debt 
is  not  payment  until  it  is  paid.  If  payment  is  refused  without 
the  holder's  fault  or  negligence,  he  may  sue  on  the  original 
indebtedness.  The  holder  is  merely  the  agent  of  the  maker  in 
getting  the  money  to  pay  his  debt.  The  acceptance  of  the  check 
of  a  third  party  is  regarded  in  the  same  manner. 

A  check  may  be  either  ante-dated  or  post-dated.  An  ante- 
dated check  is  payable  immediately.  A  post-dated  check,  or 
one  which  bears  a  date  subsequent  to  that  of  its  actual  issue,  is 
payable  on  or  at  any  time  after  the  day  of  its  date.  Checks  are 
not  payable  in  the  order  of  priority  in  which  they  are  given,  but 
in  the  order  of  their  presentation  for  payment.  The  rule  is 
"First  come,  first  served."  If  a  post-dated  check  falls  due  on 
Sunday  or  on  a  legal  holiday,  payment  cannot  be  demanded  until 
the  day  following,  and  if  the  bank  pays  it  before  that  time,  it 
acts  at  its  peril.  The  presumption  raised  by  a  post-dated  check 
is  that  the  maker  has  an  inadequate  fund  in  the  bank  at  the  time 
of  giving  it,  but  will  have  enough  at  the  date  of  presentation. 
It  is  valid,  but  a  bank  ought  not  to  pay  it,  if  presented  earlier, 
until  the  date  mentioned ;  if  it  does  the  depositor  can  recover  his 
money.  If  transferred  by  the  holder  to  another  for  a  good  con- 
sideration before  the  date  for  demanding  payment,  he  may 
recover  of  the  maker,  although  there  was  no  consideration  for 
the  check  in  the  beginning. 

A  memorandum  check  is  defined  as  a  contract  by  which  the 
maker  engages  to  pay  the  bona  Ude  holder  absolutely,  and  not 
upon  a  condition  to  pay  if  the  bank  upon  which  it  be  drawn 
should  not  pay  upon  presentation  at  maturity,  and  if  due  notice 
of  the  presentation  and  non-payment  should  be  given.  The  word 
"memorandum"  written  or  printed  upon  the  check  describes  the 
nature  of  the  contract  with  precision.    It  is  an  express  waiver  on 


BANKS  AND  BANKING  303 

the  part  of  the  maker  of  the  check  of  any  objection  against  the 
claim  of  a  bona  fide  holder  that  it  had  not  been  presented  for 
payment,  or  if  it  were  presented  and  not  paid,  that  he  had  had 
no  notice  of  the  non-payment  of  the  bank  named  therein.  As 
between  the  bank  and  the  payee  a  memorandum  check  is  just 
like  an  ordinary  check.  The  bank  is  not  bound  to  pay  any  atten- 
tion to  the  word  "memorandum"  or  the  abbreviation  "Mem." 
written  on  the  check,  or  to  recognize  any  contract  as  implied  by 
them  between  the  maker  and  payee  which  gives  to  the  check  any 
peculiar  character.  It  has  been  held  in  New  York  State,  that  the 
alleged  custom  of  Wall  street  that  an  ordinary  check  upon  a 
bank  is  to  be  converted  into  something  contrary  to  its  legal 
effects  by  writing  "Mem."  in  one  corner  thereof,  amounts  to 
nothing.  In  reality,  according  to  very  respectable  authority,  a 
memorandum  check  amounts  to  nothing  more  than  an  indication 
of  an  understanding  that  the  check  is  not  to  be  presented  imme- 
diately for  payment,  so  as  to  destroy  the  drawer's  credit  with 
the  bank  when  he  has  not  provided  funds  to  meet  same. 

A  check  signed  by  an  individual,  with  the  word  "Agent," 
"Treas.,"  or  other  descriptive  term  has  sometimes  been  regarded 
as  his  individual  check,  and  he  alone  was  held  to  be  bound.  How- 
ever, by  the  modern  doctrine,  the  Courts  look  at  the  intent  of 
the  signer,  and  if  he  is  in  fact  an  agent,  trustee  or  officer  of  some 
principal,  the  Court  will  give  that  effect  to  them.  In  Pennsylvania 
the  strong  tendency  is  to  hold  that  an  official  does  not  bind 
himself  personally. 

A  bank  must  ascertain  that  the  party  presenting  a  check  is 
the  one  entitled  to  receive  payment,  under  penalty  of  refunding 
the  amount  either  to  the  party  really  entitled  or  to  the  drawer. 
If  a  bank  pays  a  forged  check  to  a  holder  without  fault,  who, 
in  ignorance  of  the  fraud,  pays  value  for  it,  the  money  cannot 
be  recovered  back.  A  partnership  deposit  cannot  be  drawn  on 
the  check  of  an  individual  partner. 


The  practice  of  certifying  checks  has  grown  out  of  the  busi- 
ness needs  of  the  country,  and  is  now  so  thoroughly  established 
that  its  legality  cannot  be  questioned.  It  enables  the  holder  to 
keep  or  convey  the  amounts  specified  with  safety  and  further- 
more enables  persons  not  well  acquainted  to  deal  promptly  with 
each  other,  and  avoids  the  delay  and  risks  of  receiving,  counting 
and  passing  from  hand  to  hand  large  sums  of  money.     It  has 


304  BANKS  AND  BANKING 

been  computed  by  a  competent  authority  that  the  average  daily 
account  of  such  checks  in  use  in  the  city  of  New  York  throughout 
the  year  is  not  less  than  one  hundred  million  dollars.  The 
certification  of  a  check  by  a  bank  is  equivalent  to  an  acceptance 
of  a  bill  for  that  amount  and  binds  the  bank  to  hold  sufficient 
funds  of  the  drawer  to  meet  the  check.  The  theory  of  the  law 
is  that  where  a  check  is  certified  to  be  good  by  a  bank,  the  amount 
thereof  is  then  charged  to  the  account  of  the  drawer  in  the  bank 
certificate  account.  Every  well  regulated  bank  adopts  this  prac- 
tice to  protect  itself.  It  follows  that  after  a  check  is  certified, 
the  drawer  of  the  check  cannot  draw  out  the  funds  then  in  the 
bank  necessary  to  meet  the  certified  check.  That  money  is  no 
longer  his.  In  other  words,  a  certificate  that  a  check  is  "good" 
operates  as  an  engagement  of  the  bank  to  pay  the  debt  as  its 
own;  the  bank  becomes  the  principal  debtor  and  the  drawer  is 
discharged.  The  law  of  demand  and  notice  has  no  application 
to  certified  checks,  and  the  bank  becomes  so  far  the  primary 
debtor  that  no  delay,  until  the  Statute  of  Limitations  has  released 
the  certifying  bank,  will  affect  the  obligation  to  pay  the  holder. 
No  particular  form  of  certification  is  necessary.  Ordinarily  the 
bank  officer  writes  on  the  check  the  word  "good"  or  its  equivalent, 
and  sometimes  adds  his  name  or  initial. 

If  a  bank  certifies  a  check  to  be  good  by  mistake,  under  the 
impression  that  the  drawer  had  funds  on  deposit,  and  notifies 
the  holder  in  sufficient  time  to  prevent  any  loss  in  consequence 
of  the  error,  the  Courts  have  held  that  the  bank  is  discharged 
from  liability  on  its  certificate. 

It  is  provided  in  the  Negotiable  Instrument  Act  of  Penn- 
sylvania that  a  check  does  not  operate  as  an  assignment  of  any 
part  of  the  funds  to  the  cre4it  of  the  drawer  with  the  bank,  and 
the  bank  is  not  liable  to  the  holder  unless  and  until  it  accepts 
or  certifies  the  check. 

If  the  drawer  should  withdraw  his  deposit  before  the  pres- 
entation of  his  check  for  payment,  although  after  a  reasonable 
time  had  elapsed  for  presenting  it,  he  would  still  be  liable.  Noth- 
ing short  of  the  retention  of  his  deposit  there  until  the  bank's 
failure,  or  until  the  Statute  of  Limitations  has  released  him, 
operates  as  a  discharge  of  the  debt.  It  sometimes  happens  that  a 
deposit  is  insufficient  to  pay  a  check  in  full,  in  which  event  a 
bank  may  decline  to  pay  it  at  all ;  although  it  may,  if  it  wishes, 
credit  the  amount  of  such  deposit  on  the  check,  though  this  is 
seldom  done.  If  a  bank  pays  a  check  to  a  holder  who  has  com- 
mitted no  fraud,  it  cannot  recover  of  the  holder,  if  in  fact  there 


BANKS  AND  BANKING  305 

was  not  a  sufficient  deposit,  in  which  case  the  bank  must  look 
to  the  drawer. 

The  law  is  well  established  to  the  effect  that  if  a  bank  neg- 
lect or  refuse  to  pay  on  the  order  of  a  depositor,  where  the  latter 
has  sufficient  funds  on  deposit,  the  depositor  can  maintain  an 
action  against  the  bank  for  the  money,  and  is  entitled  to  recover 
substantial  damages  for  such  refusal.  When  a  drawee  bank 
(the  bank  on  which  a  check  is  drawn)  has  paid  a  depositor's 
check  by  remitting  the  amount  by  draft  in  a  letter  mailed  to  the 
bank  from  which  the  check  was  received,  and  afterwards  learns 
of  the  depositor's  insolvency  or  the  insufficiency  01  his  deposit 
to  cover  his  check,  this  is  usually  regarded  as  in  legal  eflfect  a 
delivery  to  the  sending  bank  and  beyond  the  sender's  recall. 

As  a  general  rule,  the  drawer  of  an  uncertified  check  can 
revoke  his  order  at  any  time  before  the  bank's  acceptance  thereof, 
and  the  bank  is  bound  by  such  revocation.  In  such  case,  how- 
ever, the  drawer  is  liable  to  the  holder  for  the  consequences  of 
his  conduct.  Ordinarily  the  death  of  the  maker  of  a  check  will 
operate  as  a  revocation ;  but,  notwithstanding  this,  if  a  bank  pay 
a  check  after  the  drawer's  death  and  before  learning  of  the  event, 
it  is  not  liable.  In  those  jurisdictions  where  a  check  is  regarded 
as  an  assignment  of  the  funds  to  the  amount  thereof  the  death 
of  the  drawer  would  not  be  regarded  as  a  revocation. 

It  is  fraudulent  for  the  drawer  of  a  check  to  have  it  certi- 
fied after  he  has  become  insolvent.  If  this  is  done,  the  certifying 
bank  has  a  right  to  reclaim  or  countermand  the  payment  of  the 
check,  unless  it  has  been  previously  transferred  to  an  innocent 
holder.  A  bona  Ude  holder  of  a  check  or  other  negotiable  instru- 
ment which  is  transferable  by  delivery  acquires  a  good  title  even 
from  a  thief  or  finder.  A  bank,  consequently,  is  protected  by 
the  law  in  paying  such  a  check  or  other  commercial  paper  in  the 
absence  of  notice. 

In  case  a  depositor  is  indebted  to  a  bank  and  his  deposit  is 
sufficient  to  meet  the  obligation,  and  it  has  not  been  specifically 
appropriated  by  him  to  be  held  for  a  different  purpose,  the  bank 
has  a  right  to  apply  such  deposit  to  the  payment  of  the  debt. 
The  general  Hen  of  a  bank  upon  a  customer's  deposits  will  not 
be  recognized  where  the  circumstances  are  inconsistent  therewith. 
Thus,  for  example,  where  securities  are  lodged  with  the  bank 
for  a  particular  purpose,  as  where  they  are  pledged  as  collateral 
to  cover  a  particular  loan  or  debt,  they  cannot  be  retained  by  the 
bank  for  the  general  balance  or  for  the  payment  of  other  claims. 
A  bank  cannot  apply  a  deposit  to  an  indebtedness  which  has  not 

20  « 


3o6  BANKS  AND  BANKING 

matured.  A  bank  that  gives  a  customer  credit  to  a  specified 
amount,  which  is  to  be  secured  by  collections,  cannot  divert  and 
suspend  payments  made  on  other  notes  until  the  maturity  of 
such  credit. 

Banking  Regtilations. 

Statutory  regulations  for  conducting  the  banking  business 
may  be  supplemented  by  every  bank  with  such  other  regulations, 
in  harmony  with  law,  as  its  interests  may  require.  Such  regula- 
tions or  by-laws  are  regarded  as  a  contract  between  the  bank  and 
its  customers.  The  officers  of  the  bank  are  presumed  to  know 
them  and  are  bound  thereby  so  far  as  they  determine  the  rela- 
tion between  the  bank  and  themselves.  The  stockholders  like- 
wise are  presumed  to  know  the  by-laws  of  the  bank.  As  a  con- 
tract relation  between  bank  and  depositor  exists,  the  terms  of 
which  are  largely  embodied  in  the  by-laws  of  the  bank,  their 
alteration  by  the  bank  alone,  without  the  consent  of  the  depositor, 
is  a  somewhat  arbitrary  exercise  of  authority.  Yet  by-laws  that 
provide  for  reasonable  amendment,  without  consulting  the  bank's 
depositors,  have  on  several  occasions  been  declared  valid. 

Authority  to  make  and  amend  by-laws  vests  in  the  stock- 
holders of  a  bank,  who  in  turn  may  delegate  their  authority  to 
the  directors. 

Usage  plays  a  very  conspicuous  part  in  the  law  of  banking. 
It  has  no  inflexible  boundary;  it  may  apply  to  a  bank  or  to  all 
banks  of  the  community ;  it  cannot  be  suddenly  created  nor,  save 
by  statutory  change,  suddenly  disappear.  Custom  is  a  law  estab- 
lished by  long  usage.  A  universal  custom  becomes  common  law. 
No  contract  or  agreement  can  modify  a  law,  but  where  no  prin- 
ciple of  public  policy  is  violated,  parties  are  at  liberty  to  forego 
the  protection  of  the  law.  Statutory  provision  designed  for  the 
benefit  of  individuals  may  be  waived;  but,  where  the  enactment 
is  to  secure  general  objects  of  policy  or  morals,  no  consent  will 
render  a  non-compliance  with  the  statute  eflfectual. 

Individuals  living  in  the  same  community  with  banks  are 
supposed  to  know  bank  usages,  and  are  presumed  to  act  accord- 
ingly in  doing  business  with  these  institutions,  whether  they  have 
actual  knowledge  of  the  existence  of  the  usages  prevailing  among 
them  or  not.  The  general  course  of  business  in  a  community, 
including  the  universal  practice  of  banks,  is  a  matter  of  which 
the  Courts  will  take  judicial  notice. 


BANKS  AND  BANKING  307 

Officers  and  Agents. 

The  manner  of  selecting  tlie  directors  of  a  bank  is  generally 
controlled  by  its  charter,  but  when  they  are  once  elected  their 
authority  continues  until  successors  are  chosen  and  duly  qualified. 
The  president  and  other  executive  officers  of  a  bank  are  chosen 
by  the  directors.  The  election  of  an  individual  to  the  presidency 
or  other  office  of  a  bank  by  a  majority  of  the  quorum  of  the 
Board  of  Directors  is  valid.  Title  to  office  vests  as  soon  as  the 
vote  of  the  majority  of  the  directors  is  declared.  The  directors 
of  a  bank  ordinarily  have  authority  to  appoint  special  agents  and 
they  may  also  confer  a  special  agency  on  the  bank's  regular 
officers.  Statutes  in  most  States  require  all  bank  officers  to  enter 
bonds.  If  an  officer  is  promoted,  thereby  incurring  greater  re- 
sponsibility and  his  bond  is  not  changed,  his  sureties  are  released 
for  any  defalcation  in  the  higher  office. 

The  compensation  of  the  principal  officers  of  a  bank  is 
usually  fixed  by  resolution  or  agreement  of  the  directors,  or 
by-laws  of  the  stockholders.  Unless  thus  fixed,  they  are  entitled 
to  no  compensation  for  performing  the  ordinary  duties  of  their 
office.  When  once  fixed,  no  increase  for  a  past  service  however 
valuable,  can  be  allowed,  although  this  rule  has  been  somewhat 
modified.  A  bank's  president  who  is  authorized  to  act  as  a  re- 
ceiver, is  not  thereby  forbidden  to  thus  act  in  his  individual 
capacity ;  nor  is  he,  when  thus  acting,  obliged  to  account  for  his 
compensation  to  the  bank  on  the  ground  that  it  is  entitled  to 
his  entire  service.  Should  a  bank  become  insolvent  and  the  presi- 
dent be  appointed  receiver,  he  cannot  continue  to  draw  his 
presidential  salary,  nor,  in  fact,  can  any  of  the  officers  continue 
to  draw  theirs.  They  can,  however,  prove  their  claims  for 
salaries  like  other  creditors. 

Every  bank  officer,  including  every  director,  of  course,  is  an 
agent  of  the  bank,  and  the  acts  of  the  directors  are  regarded  as 
corporate  acts,  while  the  acts  of  other  officers  are  governed  by 
the  general  rules  of  agency.  They  have  authority  to  act  in 
accordance  with  the  general  usage,  practice,  and  course  of  their 
business ;  and  when  thus  acting  they  bind  their  bank  in  favor  of 
third  persons  who  have  no  knowledge  of  any  narrower  limitations 
of  their  powers.  It  has  been  held  that  a  bank  is  liable  for  a  loan 
obtained  from  another  bank,  although  the  officer  who  borrows 
the  money  acts  without  the  knowledge  of  the  other  officials  and 
appropriates  the  money  to  his  own  use.  When  the  president  of  a 
bank  acts  in  good  faith  in  discounting  paper  he  is  jiot  liable  for 


3o8  BANKS  AND  BANKING 

the  consequences,  but  he  is  liable  if  he  lends  to  a  minor  or  other 
person  against  whom  payment  cannot  be  enforced.  A  bank  is 
not  liable  for  slander  consisting  of  unauthorized  declarations 
of  its  cashier  concerning  the  condition  of  the  account  of  a 
customer. 

The  relationship  existing  between  the  directors  and  the 
stockholders  of  a  bank  is  purely  a  trust  relationship  and  the 
directors  can  only  use  the  funds  of  the  bank  for  legitimate  bank- 
ing purposes.  The  directors  of  a  bank  are  bound  to  exercise 
ordinary  skill  and  diligence,  and  are  liable  for  losses  resulting 
from  mismanagement  of  the  affairs  and  business  of  the  bank, 
but  for  excusable  mistakes  concerning  the  law,  and  for  errors 
of  judgment,  when  acting  in  good  faith,  they  are  not  liable.  It 
is  the  duty  of  the  Board  of  Directors  to  exercise  a  general  super- 
vision over  the  affairs  of  the  bank,  and  to  direct  and  control  the 
action  of  its  subordinate  officers  in  all  important  transactions. 
The  community  has  the  right  to  assume  that  the  directory  of  a 
bank  does  its  duty,  and  to  hold  them  personally  liable  for  neglect- 
ing it.  Their  contract  is  not  alone  with  the  bank.  They  invite 
the  public  to  deal  with  the  bank,  and  when  anyone  accepts  their 
invitation  he  has  the  right  to  expect  reasonable  diligence  and 
good  faith  at  their  hands. 

The  president  of  a  bank,  by  virtue  of  his  office,  has  authority 
to  take  charge  of  the  litigation  of  the  bank,  and  may  answer 
and  defend  suits  against  it  and  employ  counsel  in  its  behalf.  In 
the  absence  of  authority,  the  president  cannot  dispose  of  the  cash 
or  credits  of  the  bank  for  the  purpose  of  settling  the  demands  of 
its  creditors. 

The  directors  of  a  bank  can  act  only  as  a  Board  in  conduct- 
ing its  business.  Their  separate  assent  to  any  action  is  not  the 
assent  of  the  corporation.  The  meetings  of  directors  are  largely 
regulated  by  statute  and  by-law.  A  long-established  custom  of 
holding  meetings  and  transacting  business  at  the  bank  during 
business  hours  whenever  a  sufficient  number  are  present  serves 
as  a  standing  notice  to  each  director,  and  they  can  proceed  to 
transact  business  unless  a  by-law  prescribes  a  different  course. 

Directors  of  a  bank  often  have  a  personal  interest  in  busi- 
ness which  as  directors  they  are  required  to  pass  upon.  A  direc- 
tor of  a  corporation,  like  any  other  trustee,  is  bound  to  act  in 
the  utmost  good  faith  toward  his  beneficiary,  and  is  forbidden  to 
take  part  in  any  transaction  concerning  the  trust  in  which  he  has 
an  interest  adverse  to  that  of  his  beneficiary;  but  he  is  not  abso- 
lutely precluded  from  dealing  directly  with  the  corporation  of 
which  he  is  director. 


BANKS  AND  BANKING  309 

It  has  been  held  that  should  the  president  or  other  officer 
make  a  loan  to  himself,  the  knowledge  of  which  should  subse- 
quently come  to  the  directors  and  pass  without  objection,  their 
silence  would  operate  as  a  ratification. 

A  duty  imposed  upon  the  Board  of  Directors  by  statute  to 
be  personally  perfonned  cannot  be  delegated  to  a  committee  or 
agent  of  a  bank.  They  may  delegate  certain  powers  by  the  enact- 
ment of  a  by-law  or  a  resolution,  and  thereby  confer  executive 
authority  upon  a  committee  or  an  agent,  but  where  the  statute 
or  charter  of  a  corporation  specifically  defines  an  act  or  duty 
to  be  performed  by  the  directors,  they  have  no  power  to  set  aside 
the  law,  and  appoint  agents  to  do  the  very  thing  which  the  law 
requires  them  personally  to  perform.  They  cannot  delegate  to 
an  officer  of  the  bank  sole  authority  to  make  discounts  or,  in 
other  words,  they  cannot  give  unlimited  power  to  an  officer  to 
loan  funds  of  the  bank  to  any  person  or  persons  who  might  make 
application  therefor. 

Directors  as  Trustees. 

The  directors  are  held  by  a  majority  of  the  Courts  at  the 
present  time  to  be  the  trustees  of  the  funds  and  property  of  the 
banking  corporation,  and  such  funds  cannot  be  loaned  nor  in- 
vested without  authority  of  the  Board  of  Directors,  who  are 
held  responsible  for  them.  Loans  and  discounts  may  be  author- 
ized, and  the  executive  part  of  the  business  performed  by  the 
cashier,  president,  or  other  agent  of  the  bank,  but  the  officer  has 
no  inherent  authority  in  the  absence  of  a  resolution  or  direction 
coming  from  the  Board  of  Directors  to  make  loans  to  any  person 
or  persons.  The  directors  may,  by  a  single  resolution,  authorize 
the  cashier  to  make  loans  to  a  certain  person,  firm,  or  corporation, 
up  to  a  certain  amount,  and  in  this  manner  delegate  their  au- 
thority, but  beyond  this  it  has  been  held  that  a  general  resolution 
passed  by  the  Board  of  Directors  authorizing  the  cashier  to 
discount  notes  and  make  loans  generally,  to  those  making  appli- 
cation and  desiring  to  borrow,  is  not  within  their  power  or 
authority.  If  loans  have  been  made  by  an  officer  of  the  bank 
without  authority  obtained  from  the  Board  of  Directors,  they 
may  afterward  be  ratified  by  the  Board  and  such  ratification 
legalizes  the  act. 

Discounting  notes  is  the  principal  business  of  a  bank;  its 
resources  almost  entirely  consist  of  its  bills  receivable.  The 
deposits  of  the  bank  are  placed  with  the  bank  by  the  depositors 


3IO  BANKS  AND  BANKING 

upon  an  implied  theory  that  when  an  investment  or  loan  is  made, 
they  are  to  be  loaned  and  invested  by  the  trustees  or  directors 
with  reasonable  care  and  diligence.  The  making  of  the  invest- 
ments for  the  bank  is  a  duty  belonging  altogether  to  the  Board 
of  Directors.  The  directors  are  consequently  precluded,  by  the 
acceptance  of  the  trust,  from  making  any  use  of  their  power  or 
of  the  corporate  property  for  their  own  advantage.  The  well- 
known  and  established  rule  of  law  is  that  the  directors  must 
manage  the  business  of  a  bank  as  directed  by  the  law  and  the 
bank's  charter.  If' they  fail  to  perform  this  duty  in  good  faith 
they  will  be  held  liable  for  the  losses  to  the  stockholders  and 
directors.  Directors  may  commit  the  ministerial  work  of  the 
bank  to  officers  duly  authorized  to  perform  the  same,  but  this 
does  not  absolve  them  from  the  duty  of  reasonable  supervision 
or  shield  them  from  liability  for  the  wrongdoing  of  such  official, 
if  through  gross  inattention  the  wrongdoing  has  escaped  their 
notice. 

The  general  rule  is  that  directors  of  banks  are  acting  as 
trustees  and  as  such  are  supposed  to  serve  without  compensation. 
A  governing  statute  may  allow  them  to  regulate  their  own  com- 
pensation, but  in  the  absence  of  a  statute  or  by-law  their  services 
are  supposed  to  be  gratuitous.  They  cannot  vote  themselves 
salaries,  because  such  a  resolution  is  void,  being  a  promise  without 
a  consideration. 

The  Bank  President. 

The  executive  business  of  a  bank  is  conducted  by  its  presi- 
dent, vice-president,  cashier  and  secretary.  In  some  cases  the 
president  of  a  bank  is  expected  to  devote  only  a  portion  of  his 
time  to  the  business,  and  is  not  required  to  exercise  the  same 
degree  of  care  and  foresight  as  a  president  who  is  the  real  head 
and  manager  and  who  possesses  all  the  authority  of  the  cashier. 
He  may,  however,  be  authorized  by  the  directors  to  do  anything 
within  the  authority  of  the  bank's  charter  except  those  positive 
requirements  that  are  personal  and  cannot  be  delegated ;  but 
when  he  goes  beyond  the  scope  of  his  usual  authority  it  must  be 
shown  that  in  some  way  his  act  was  authorized  by  the  directors. 
The  authority  of  the  president  during  the  cashier's  absence  has 
often  been  questioned,  but  custom  ordinarily  governs  in  such 
cases,  and  it  may  be  stated  generallv  that  whatever  the  cashier 
can  do  the  president  can  do  during  his  absence. 

The  duties  of  a  president,  as  his  office  indicates,  are  execu- 


BANKS  AND  BANKING  311 

tive.  He  should  preside  at  all  meetings  of  the  Board  of  Direc- 
tors; he  should  frequently  examine  into  the  condition  of  the 
bank's  affairs,  making  a  searching  and  thorough  examination, 
taking  off  a  balance,  counting  the  cash,  and  generally  making  a 
careful  inspection  of  all  the  books.  If  this  practice  is  maintained 
employees  will  seldom,  if  they  are  so  inclined,  attempt  malfeas- 
ance. A  bank  that  has  for  its  president  one  that  will  faithfully 
follow  this  practice,  if  otherwise  judiciously  managed,  should 
never  be  compelled  to  go  into  involuntary  liquidation.  His  ex- 
ecutive powers  are  limited  by  the  charter  and  by-laws,  but  in 
the  holding  of  the  office  he  is  regarded  as  having  charge  of  the 
affairs  of  the  bank.  His  acts  must  be  authorized,  acquiesced  in, 
or  subsequently  ratified  by  the  Board  of  Directors  in  order  to 
bind  the  bank. 

The  president  of  a  bank  should  not  be  permitted  to  borrow 
its  funds  without  the  consent  of  the  finance  committee,  and  in 
the  absence  of  such  a  committee  the  loan  should  be  passed  upon 
by  the  Board  of  Directors. 

The  Cashier. 

The  cashier  is  the  agent  of  the  bank  and  not  of  the  directors ; 
his  acts  are  binding  on  his  bank,  and  those  who  deal  with  him 
are  presumed  to  know  the  extent  of  his  general  powers.  His 
conduct  outside  his  official  sphere  which  is  not  criminal  or  con- 
trary to  public  policy,  if  known  and  accepted  by  the  bank,  is 
binding  thereon ;  and,  even  though  contrary  to  law,  the  bank  is 
bound  if  the  act  done  by  the  cashier  was  by  the  authority  of  the 
Board  of  Directors.  The  cashier  of  a  bank  is  supposed  to  be 
the  thermometer  of  the  bank,  and  should  be  able  to  denote  the 
condition  and  financial  temperature  of  the  same  at  any  time.  It 
should  be  his  imperative  duty  to  examine  daily  the  balance  books, 
and  as  frequently  as  possible  inspect  the  work  of  clerks  and  keep 
himself  informed  concerning  the  business  of  the  bank. 

The  duties  of  a  cashier  depend  in  a  degree  upon  the  condi- 
tions surrounding  the  bank.  The  location  and  volume  of  business 
which  the  bank  has  may  enlarge  or  lessen  the  detail  of  labor  and 
his  responsibility.  The  Supreme  Court  of  the  United  States  has 
defined  the  powers  and  duties  of  the  cashier  of  a  bank  as  follows : 
"The  cashier  is  the  executive  officer,  through  whom  the  whole 
financial  operations  of  a  bank  are  conducted.  He  receives  and 
pays  out  its  moneys,  collects  and  pays  its  debts  and  receives  and 
transfers  its  commercial  securities.    Tellers  and  other  subordinate 


312  BANKS  AND  BANKING 

officers  may  be  appointed,  but  they  are  under  his  direction  and 
are  the  arms  by  which  designated  portions  of  his  various  func- 
tions are  discharged.  A  teller  may  be  clothed  with  the  power 
to  certify  checks,  but  this  in  itself  would  not  affect  the  right  of 
the  cashier  to  do  the  same  thing." 

Although  it  is  one  of  the  usual  powers  of  a  cashier  to  certify 
checks,  the  certification  of  his  own  checks  is  utterly  void,  even 
though  he  has  money  to  his  credit  in  the  bank  covering  the 
amount  of  the  check.  The  fact  that  he  has  deposited  the  amount 
of  the  check  does  not  authorize  him  to  certify  his  own  check.  A 
cashier  has  the  inherent  power  to  buy  and  sell  foreign  or  inland 
bills  of  exchange.  Dealing  in  bills  of  exchange  is  a  part  of  the 
business  of  banking,  and  it  becomes  the  duty  of  the  cashier  in 
the  purchase  and  sale  of  the  same  to  indorse  them  over  to  the 
buyer.  He  is  charged  with  the  care  and  safekeeping  of  all  the 
notes,  bonds,  bills  and  other  securities  and  valuable  papers  be- 
longing to  the  bank,  and  may  during  the  ordinary  course  of 
business  sell,  transfer  and  dispose  of  the  same,  and  it  will  be 
presumed  until  the  contrary  is  shown  that  he  sold  the  same  on 
behalf  of  the  bank  and  was  authorized  to  do  so  by  the  directors, 
or  that  they  ratified  his  acts.  When  a  run  occurs  upon  a  bank 
the  powers  of  the  cashier  in  relation  to  the  property  of  the  bank 
are  not  changed  or  in  any  way  affected.  In  such  a  crisis  the 
cashier  has  the  power  to  put  into  exercise  every  usage,  custom 
and  law  in  order  to  protect  the  interests  of  the  bank  and  see 
that  no  depositor  or  creditor  obtains  a  preferred  position  or  right 
over  another  creditor  equally  entitled.  A  cashier  may  draw 
checks  while  away  from  the  bank,  and  may  also  indorse  papers 
while  away  from  the  bank.  He  may  likewise  pay  or  certify  checks 
away  from  the  bank.  A  cashier  has  no  right  by  virtue  of  his  office 
to  compromise  a  claim  of  the  bank  or  to  execute  a  composition 
agreement  and  release  therefor. 

Paying  and  Receiving  Tellers. 

The  functions  of  the  tellers  of  a  bank,  both  receiving  and 
paying,  are  respectively  to  receive  and  pay  out  the  moneys  of  the 
bank,  and  as  a  rule  one  cannot  discharge  the  duties  of  the  other. 
The  paying  teller  is  entrusted  with  the  custody  and  disbursement 
of  the  funds  of  the  bank.  He  must  know  the  signatures  of  the 
bank*s  customers  and  be  ready  to  decide  upon  the  payment  or 
refusal  of  all  checks  when  presented.  The  teller  has  no  authority 
to  make  contracts  for  the  bank,  and  when  he  attempts  to  do  so, 
if  the  party  dealing  with  him  has  knowledge  of  the  fact  that  his 


BANKS  AND  BANKING  313 

position  in  the  bank  is  that  of  a  teller,  the  bank  is  not  bound 
by  the  contract  where  the  same  is  outside  of  his  duty  and  au- 
thority. It  is  the  duty  of  the  paying  teller  when  authorized  to 
certify  checks,  unless  such  authority  is  strictly  delegated  to  the 
cashier.  A  paying  teller  cannot  be  held  liable  for  paying  a  raised 
check  which  by  ordinary  care,  careful  scrutiny  and  inspection, 
could  not  be  discovered.  It  is  the  duty  of  the  paying  teller, 
after  the  exchanges  have  been  made  at  the  clearing  house,  to 
examine  carefully  each  check  coming  through  the  same  before 
charging  the  same  to  the  drawer's  account.  The  paying  teller 
should,  before  honoring  a  check,  satisfy  himself  that  there  is  no 
revocation  not  to  pay  previously  entered  with  the  bank  by  the 
maker.  At  the  close  of  the  day's  business  it  is  the  duty  of  the 
teller  to  make  proof  of  the  day's  transactions ;  his  cash  on  hand, 
adding  all  checks  paid,  must  agree  with  the  cash  received  from 
the  cashier  at  the  beginning  of  business  of  that  day. 

It  is  the  duty  of  the  receiving  teller  of  a  bank  not  to  receive 
or  give  credit  to  a  depositor  for  money,  checks  or  drafts  which 
may  be  counterfeits  or  spurious.  He  is  required  to  make  a  care- 
ful examination  of  each  coin,  banknote,  check,  draft  or  other 
instrument  offered  for  deposit,  and  before  acceptance,  if  in  doubt 
as  to  their  genuineness,  apply  the  tests  known  to  experts. 

It  is  the  duty  of  the  note  teller  of  a  bank  to  receive  the  money 
for  all  promissory  notes  liquidated  at  the  bank.  At  the  close  of 
each  day's  business  the  teller  must  account  for  the  disposition  of 
all  notes  received  by  him.  All  notes  received  by  him  which  are 
payable  at  other  places  in  the  city  are  sent  out  by  messenger  for 
presentation  and  collection.  When  notes  are  paid  certified  checks 
or  money  should  be  demanded. 

Savings  Banks. 

In  order  to  stimulate  the  habit  of  saving  among  the  poor 
savings  banks  were  organized.  Originally  these  were  mutual  in 
principle  and  charitable  in  character.  Savings  banks  are  not 
formed  primarily  for  the  advantage  and  profit  of  the  stockholders 
or  corporators,  but  for  the  benefit  of  the  depositors,  and  in  this 
respect  they  differ  radically  from  ordinary  banks.  Strictly  speak- 
ing, they  cannot  be  called  charitable  institutions.  The  chief 
business  of  a  savings  bank  is  to  receive  deposits,  invest  them  in 
certain  classes  of  securities  and  pay  to  depositors  the  amount  due 
them  as  they  from  time  to  time  demand.  A  savings  bank  has  no 
authority  to  do  a  general  banking  business,  not  even  to  engage 


314  BANKS  AND  BANKING 

in  the  business  of  discounting  bank  paper.  It  is  no  part  of  the 
business  for  which  it  is  established  to  obtain  a  market  value  for 
or  give  a  market  value  to  the  negotiable  paper  of  persons  or 
other  corporations  by  guaranteeing  or  indorsing  it.  Its  duty  is 
to  keep  the  moneys  deposited  with  it  safely  invested,  and  not  to 
hazard  those  moneys  by  assuming  responsibility  for  the  perform- 
ance of  the  contracts  of  others.  The  investments  which  such 
institutions  may  make  are  prescribed  by  their  charters  or  by 
general  statute,  and  must,  of  course,  be  made  in  accordance 
therewith.  There  are  also  statutes  in  the  various  States  regulat- 
ing savings  banks  in  regard  to  the  reserve  fund,  the  division 
of  profits  and  other  like  matters. 

Savings  banks  are  of  two  classes — ^mutual  associations  and 
capital  stock  corporations.  A  mutual  savings  bank  is  organized 
without  capital  stock  and  for  the  sole  purpose  of  accumulating, 
holding  and  loaning  the  funds  of  their  members.  They  are  in- 
stitutions for  the  deposit  and  safekeeping  of  money,  and  the 
profits,  if  any,  arising  from  the  investment  of  such  deposits,  are 
annually  or  semi-annually  paid  to  the  depositors. 

Where  a  statute  authorizes  the  incorporation  of  such  a  sav- 
ings bank,  the  law  will  not  permit  the  bank  to  conduct  any  other 
than  a  savings  bank  business.  When  savings  institutions  are 
incorporated  without  capital  stock  they  are  merely  places  of 
deposit  where  money  can  be  left  to  remain  or  to  be  taken  out  at 
the  pleasure  of  the  owner,  and  under  such  terms  as  may  be  stipu- 
lated in  the  by-laws  and  agreed  upon  between  the  parties.  In 
such  a  case  the  assets  consist  in  loans  of  money  made  by  them 
for  the  benefit  of  the  members  or  depositors  from  whom  the 
money  was  derived.  In  case  oi  loss,  they  have  no  property  out 
of  which  it  can  be  paid,  and  the  loss  is  apportioned  pro  rata 
among  the  depositors. 

A  mutual  savings  bank  upon  receiving  money  may  invest 
the  same,  but  the  securities  taken  are  for  the  general  benefit  of 
all  the  depositors.  After  the  necessary  expenses  are  paid  for 
its  management,  the  interest  received  upon  the  investments  must 
be  ratably  divided  among  the  depositors.  The  trustees  and 
officers,  in  the  absence  of  fraud,  have  no  personal  liability. 

Capital  Stock  Corporations. 

Where  a  savings  bank  is  incorporated  with  capital  stock,  the 
stock  of  the  corporation  becomes  a  security  to  the  depositor  in 
case  of  loss.  The  trustees  or  directors  in  a  corporation  organized 
with  capital  stock  are  also  held  bound  by  the  same  in  relation  to 


BANKS  AND  BANKING  315 

the  funds  entrusted  to  them  as  are  the  trustees  in  a  mutual 
association. 

The  authorities  are  not  agreed  as  to  the  precise  legal  relation 
existing  between  a  savings  bank  and  its  depositors.  By  some 
the  relation  is  held  to  be  that  of  agent  and  principal ;  by  otliers 
that  of  debtor  and  creditor.  The  view  supported  by  the  weight 
of  authority  is  that  the  bank  is  a  trustee  for  depositors.  The 
doctrine  established  by  the  leading  authorities  is  to  the  following 
effect :  The  rights  of  the  depositors  in  a  savings  bank  are  of  a 
twofold  character.  While  the  corporation  is  solvent  and  in 
operation,  the  depositors  may  be  regarded  solely  in  the  light 
of  creditors  of  the  corporation ;  they  may  withdraw  their  deposits 
and  claim  interest,  as  provided  in  the  charter  and  by-laws,  and 
may  enforce  their  rights  by  the  usual  remedies  at  law.  But  the 
depositors  are  in  reality  something  different  from  ordinary  cred- 
itors. They  are  joint  beneficiaries  of  the  corporate  estate  and 
occupy  a  position  similar  to  that  of  stockholders  in  an  ordinary 
corporation.  The  Courts  will  recognize  the  true  position  of  the 
depositors  as  they  do  the  true  position  of  the  shareholders,  when,- 
ever  this  becomes  necessary  for  the  protection  and  adjustment 
of  their  equitable  rights. 

A  depositor  in  a  mutual  savings  society  is  declared  as  hold- 
ing the  same  relationship  as  stockholders  in  a  capitalized  bank, 
and  may  be  held  liable  for  his  or  her  proportion  of  the  losses  if 
any  exist  at  the  time  of  winding  up  the  affairs  of  the  bank.  A 
depositor  in  a  capitalized  savings  bank  has  no  liability  at  any 
time. 

A  savings  bank  may  make  such  rules  and  regulations  for  the 
receiving  and  withdrawing  of  deposits  as  are  reasonable,  and 
such  rules  constitute  the  contract  between  the  bank  and  the  de- 
positor and  are  binding  on  both.  Generally  these  rules  are  printed 
in  the  pass  book  given  the  depositor  when  the  account  is  opened. 

Savings  banks  generally  require  depositors  to  give  notice 
of  an  intention  to  withdraw  a  deposit.  This  right  may  be  waived 
by  the  bank,  A  rule  that  payments  made  to  the  person  producing 
the  pass  book  shall  discharge  the  bank  is  usually  adopted  by  in- 
stitutions of  the  kind  under  discussion,  and  such  a  rule  has  been 
held  by  the  Courts  to  be  reasonable,  and  discharges  the  bank 
when  it  has  exercised  care  in  paying,  even  though  the  presenter 
was  a  thief. 

If  a  depositor  loses  his  pass  book  he  must  furnish  sat- 
isfactory proof  of  loss  as  well  as  indemnity  before  he  can  draw 
out  any  funds. 


3i6  BANKS  AND  BANKING 

Officers,  Duties  and  Liabilities. 

The  officers  entrusted  witii  the  management  of  the  affairs  of 
a  savings  bank  are  held  to  the  exercise  of  common  care,  prudence 
and  judgment.  They  cannot  assume  responsibilities  nor  enter 
into  contracts  or  transactions  so  as  to  bind  the  bank,  unless  such 
acts  are  clearly  incidental  to  the  duties  imposed  upon  them. 

The  chief  managing  officer  of  a  savings  bank  is  the  treasurer, 
and  when  thus  acting  he  has  authority  to  collect  the  bank's  debts, 
and  to  that  end  can  conduct  the  bank's  litigation ;  to  extend  the 
time  for  paying  a  debt ;  to  take  possession  of  land  acquired  under 
a  mortgage;  or  to  receive  special  deposits.  He  is  specially  au- 
thorized to  sell  and  transfer  stocks  and  mortgages,  and  his 
authority  to  indorse  notes  may  be  inferred  from  the  conduct  of 
the  trustees  without  any  express  direction  from  them. 

The  general  rule  applying  to  the  trustees  and  directors  of 
savings  banks  is  the  same  rule  that  applies  to  the  directors  of 
other  banking  institutions.  If  they  invest  their  bank's  funds  on 
personal  security,  or  in  any  other  manner  contrary  to  law,  they 
render  themselves  liable. 

The  treasurer  of  a  savings  bank  is  an  officer  of  much  more 
limited  powers  than  the  cashier  of  a  commercial  bank.  His  duties 
more  nearly  resemble  those  of  the  paying  and  receiving  tellers  of 
banks. 

A  delivery  of  a  savings  bank  deposit  book  by  the  depositor 
to  a  third  person,  with  intent  to  make  a  gift  of  the  deposit,  con- 
stitutes a  valid  gift.  If,  however,  the  book  is  delivered  merely 
for  safekeeping,  or  for  a  purpose  inconsistent  with  an  intention 
to  relinquish  the  control  of  the  deposit  or  the  depositor's  interest 
in  it,  there  is  no  gift. 

Upon  the  insolvency  of  a  savings  bank,  the  assets  become  a 
trust  fund  to  be  managed  for  the  benefit  of  the  creditors.  A 
general  depositor  cannot  set  oflF  his  deposit  against  a  debt  due 
from  him  to  the  bank ;  all  he  is  entitled  to  is  his  just  proportion 
of  what  remains  at  the  final  winding  up  of  the  institution. 

Clearing  House. 

In  connection  with  the  subject  of  banks  and  banking,  a  defi- 
nite knowledge  of  the  functions  of  a  clearing  house  is  most 
important.  A  clearing  house  is  a  voluntary  association  of  banks 
for  the  purpose  of  making  exchange  of  notes,  checks,  bills  and 
moneys  and  settlements  between  the  banks,  all  of  which  must 
belong  to  the  association.    A  clearing  house  is  not  a  bank  used 


BANKS  AND  BANKING  317 

for  the  purpose  of  receiving  moneys  or  other  securities  on  de- 
posit. Neither  does  it  do  a  discount  business.  It  may  be  an 
incorporated  body,  composed  of  banks  where  such  banks  may 
become  stockholders,  but  is  usually  an  association  of  bankers  for 
the  purpose  of  making  exchanges. 

A  clearing  house,  although  occasionally  issuing  certificates, 
which  circulate  to  a  limited  extent  and  chiefly  in  dicharging  bal- 
ances due  from  one  bank  to  another,  is  not  a  bank,  A  clearing 
house  due-bill  is  not  a  mere  certificate  of  deposit,  but  is  nego- 
tiable, like  a  check  payable  to  bearer.  The  Supreme  Court  of 
Pennsylvania  has  decided  that  a  national  bank  does  not  violate 
its  charter  in  joining  a  clearing  house  and  assisting  in  its  man- 
agement, even  to  the  extent  of  participating  in  the  issue  of 
certificates  issued  by  it.  As  they  are  issued  on  the  deposit  of 
securities,  they  possess  a  real  value,  and  the  rightful  possessor 
of  them  is,  therefore,  an  owner  for  value. 

As  matter  of  general  information  it  may  be  stated  that  the 
idea  of  a  clearing  house  originated  in  the  city  of  Edinburgh, 
Scotland,  but  the  earliest  record  of  one  is  that  of  London, 
founded  about  1775.  To-day  clearing  house  associations  exist 
in  every  large  city  in  the  country.  The  Clearing  House  Associa- 
tion of  New  York  consists  of  the  principal  incorporated  banks. 
Two  clerks  from  each  bank  attend  at  the  Clearing  House  every 
morning,  where  one  takes  a  position  inside  of  a  counter  at  a  desk 
bearing  the  number  of  his  bank,  the  other  standing  outside  the 
counter  and  holding  in  his  hand  parcels  containing  the  checks  on 
each  of  the  other  banks,  received  the  previous  day.  At  the  sound 
of  a  bell,  the  outside  men  begin  to  move,  and  at  each  desk  they 
deposit  the  proper  parcel,  with  an  account  of  its  contents,  until, 
having  walked  around,  they  find  themselves  at  their  own  desks 
again.  At  the  end  of  this  process  the  representative  of  each  bank 
has  handed  to  the  representative  of  every  other  bank  the  demands 
against  them,  and  received  from  each  of  the  other  banks  their 
demands  on  his  bank.  A  comparison  of  the  amounts  tells  him 
at  once  whether  he  is  to  pay  into  or  receive  from  the  Gearing 
House  a  balance  in  money.    Balances  are  settled  daily. 

Rules  and  regulations  made  by  a  Gearing  House  Associa- 
tion must  be  reasonable  and  not  in  violation  of  any  law,  and, 
generally  speaking,  are  practically  the  same  throughout  the  coun- 
try. Banks  may  make  rules  for  securing  the  payment  of  balances 
that  may  be  found  due  from  one  member  to  another:  but  the 
rules  and  usages  of  a  clearing  house  are  for  the  benefit  of  its 
members,  and  their  customers  can  neither  claim  the  benefit  of 
nor  be  injured  by  them. 


3i8  BANKS  AND  BANKING 

Members  are  permitted  to  clear  for  other  banks  or  trust 
companies  in  the  same  city  or  vicinity,  by  complying  with  rules 
that  are  established  for  the  protection  of  clearing  house  mem- 
bers. Such  a  contract  between  the  two  banks  does  not  impose 
the  same  liability  on  the  clearing  house  bank  to  pay  the  checks 
drawn  on  the  other  as  the  law  imposes  on  the  drawee  bank  itself. 
It  has  been  held  that  the  non-member  is  bound  by  the  refunding 
of  a  check  by  the  other,  even  though  this  be  done  later  than  the 
time  fixed  by  the  clearing  house. 

A  settlement  made  by  two  banks  through  the  clearing  house, 
in  which  checks  are  presented  and  exchanged  and  the  balance 
between  them  is  struck,  will  be  final  if  either  fails  to  give  notice 
of  maturity  to  meet  the  balance  against  it  on  the  general  adjust- 
ment before  the  hour  when  banks  usually  pass  credit  to  the 
checks  of  their  depositor.  If  by  any  mistake  of  fact  a  check  so 
paid  but  not  good  was  retained  until  after  the  hour  fixed,  the 
payment  is  held  to  be  treated  as  payment  made  under  a  mistake 
of  fact  to  the  same  extent  and  subject  to  the  same  right  of 
reclamation  as  if  it  had  been  made  without  the  intervention  of 
the  clearing  house. 

The  Courts  of  Pennsylvania  have  decided  that  a  rule  of  the 
Philadelphia  Clearing  House  that,  on  the  discovery  that  checks 
received  in  the  morning  exchanges  are  not  good  or  are  informal, 
they  must  be  returned  by  noon  of  the  same  day,  does  not  apply 
to  forged  checks,  and  furthermore,  that  another  rule,  to  the 
effect  that  errors  shall  be  adjusted  before  a  fixed  time,  does  not 
apply  to  an  overdrawn  account. 

Another  useful  function  of  a  clearing  house  is  to  give  aid 
to  its  members  in  times  of  financial  stringency  by  issuing  clearing 
house  certificates  to  meet  the  emergency.  The  value  of  this 
method  was  clearly  demonstrated  in  the  recent  panic  (1907). 
These  certificates  extend  the  term  of  mutual  credit  involved  in 
all  clearing  house  settlements.  They  are  not  used  as  currency, 
but  their  effect  is  to  add  their  face  value  to  the  volume  of  cur- 
rency in  circulation  by  releasing  for  use  outside  that  which  would 
otherwise  have  been  reserved  for  clearing  house  settlements. 


APPLICATION  FOR  TRADE-MARKS 

&)tatrmfnt  bp  an  JnDibJUual 
Uo  all  tobom  it  map  concern:  Be  u  known  that  I,  , 

a  citizen  of  the  United  States,  residing  at  ,  in  the 

state  of  ,  and  doing  business  at  No.         on 

street,  in  said  city,  have  adopted  for  my  use  a  trade-mark  for  whiskey, 
of  which  the  following  is  a  full,  clear,  and  exact  specification: 

My  trade-mark  consists  of  the  word-syrnbol  '^Moonshine." 
This  has  generally  been  arranged  as  shown  in  the  accompanying 
facsimile,  which  represents  a  rude  still-hause,  surrounded  by  hUh 
and  forests.  Three  men  are  engaged  variously  abmd,  and  the  scene 
is  illuminated  partly  by  the  light  of  the  fire,  partly  by  the  moon  which 
appears  in  the  heavens.  Undcrri,eath  the  picture  appears  the  word 
"Moonshine"  in  ornamental  letters;  bid  the  style  of  lettering  is 
unimportant,  and  the  entire  picture  may  be  omitted  or  changed  at 
pleasure  without  materially  affecting  the  character  of  my  trade-mark, 
the  essential  feature  of  which  is  the  arbitrary  word  "Moonshine." 

This  trade-mark  I  have  u^ed  continiumsly  in  my  business  since 
the  day  of  ,   19     .     The   class  of 

merchandise  to  which  this  trade-mark  is  appropriated  is  distilled 
liquors,  and  the  particular  description  of  goods  comprised  in  said 
doss  upon  which  I  use  it  is  whiskey.  It  is  my  practice  to  apply 
my  trade-mark  to  the  bottles  containing  the  liquor  by  means  of  suitable 
labels,  on  which  it  is  printed  in  color  as  above  described.  The  word 
is  sometimes  also  blown  into  the  bottles. 

(Two  witnesses.) 

fetatrmrnt  ftp  a  JFinn 
^0  all  ta)|)om  it  map  concern:  Be  it  known  that  we, 

&  Co.,  a  firm  domiciled  in  ,  county, 

state  of  ,  and  doing  business  at  No.  , 

street,  in  said  city,  have  adopted  for  our  use  a  trade- 
mark for  mcn^s  overalls,  of  which  the  following  is  a  full,  clear,  and 
exact  specification: 

Our  trade-mark  consisUt  of  the  arbitrary  word 
This  has  generally  been  arranged  as  shown  in  the  accompanying 
facsimile,  in  which  it  appears  in  plain  block  capitals,  printed  in 
black,  in  a  horizontal  line.  But  other  forms  of  type  may  be  employed, 
or  it  may  be  differently  arranged  or  colored,  without  materially  altering 
the  character  of  our  trcule-mark,  the  essential  feature  of  which  is  the 
word 

This  trade-mark  has  been  used  continuously  in  business  by  us, 
and  those  from  whom  we  derive  our  title,  since  the  day 

of  ,19    . 

The  class  of  merchandise  to  which  this  trade-mark  is  appropriated 
is  wearing  apparel,  and  the  particular  'description  of  goods  comprised 
in  such  class  on  which  it  is  used  by  us  is  men's  overalls.     It  has  been 


our  practice  to  mark  our  trade-mark  on  the  inside  of  the  waistband 
of  the  goods  with  a  stencil,  or  to  prird  it  upon  tags  which  are  secured 
to  the  goods  in  any  desired  manner. 

Statement  b^  a  Corporation 
^0  all  im^om  it  map  concern :  Be  it  known  that  the 

Company,  a  corporation  organized  under  the  laws  of  the  state  of 

,  and  located  in  the  city  of  , 

county,  in  said  state,  and  doing  business  in  said  city  of  , 

and  also  at  ,  in  the  state  of  ,  has  adopted 

for  its  u^e  a  trade-mark  for  wheat  flour,  of  which  the  following  is  a 
full,  clear,  and  exact  specification: 

The  trade-mark  of  said  company  consists  of  a  representation  of 
a  Rocky  Mountain  sheep  and  the  words  "Big  Horn."  These  have 
generally  been  arranged  as  shown  in  the  accompanying  facsimile, 
in  which  the  animal  named,  popularly  known  as  the  "Big  Horn," 
is  represented  in  an  erect  attitude  upon  a  cliff  or  rock.  In  the  back- 
ground are  mountains  covered  with  forests,  with  distant  white  peaks; 
upon  the  sky  portion  are  the  words  "Big  Horn,"  and  arranged  in  a 
circle  about  the  whole  are  the  words  Company,  in  plain 

capital  letters.  But  these  words  may  be  omitted,  and  the  various 
accessories  of  the  picture  may  be  varied  at  pleasure,  or  altogether 
omitted,  without  materially  altering  the  character  of  the  said  trade- 
mark, the  essential  features  of  which  are  the  words  "Big  Horn," 
and  the  representation  of  a  Rocky  Mountain  sheep. 

This  trade-mark  has  been  continuously  used  by  said  corporation 
since  about  the  middle  of  the  month  of  ,  19     . 

The  class  of  merchandise  to  which  this  trade-mark  is  appro- 
priated is  flour,  and  the  particular  description  of  goods  comprised 
in  such  class  on  which  it  is  used  by  the  said  company  is  wheat  flour. 
It  is  usually  affixed  to  the  goods  by  printing  it  on  the  bags,  or  stenciling 
it  on  the  heads  of  barrels  in  which  the  flour  is  packed 

^Declaration 

State  of  ,  county  of  ,  ss:  A.  B., 

being  duly  sworn,  deposes  and  says  that  he  is  the  applicant  named 
in  the  foregoing  statement;  that  he  verily  believes  that  the  foregoing 
statement  is  true;  that  he  has  at  this  time  a  right  to  the  use  of  the 
trade-mark  therein  described;  that  no  other  person,  firm,  or  corpora- 
tion has  the  right  to  such  use,  either  in  the  identical  form  or  in  any 
such  near  resemblance  thereto  as  might  be  calculated  to  deceive;  that 
it  is  used  by  him  in  commerce  between  the  United  States  and  foreign 
Tuitions  or  Indian   tribes,   and  particularly  with  ;    and 

that  the  description  and  facsimile  presented  for  record  truly  represent 
the  trade-mark  sought  to  be  registered. 

Sworn  and  subscribed  before  me,  a  ,  this 

day  of  ,  19     . 


TRADE-MARKS. 

Defined — Registration — Test   of   Validity — Assignments — Aban- 
donment. 

A  TRADE-MARK  has  been  judicially  defined  as  "the  name, 
symbol,  figure,  letter,  form  or  device  adopted  and  used 
by  a  manufacturer  or  merchant  in  order  to  designate 
the  goods  he  manufactures  or  sells  and  distinguish  them  from 
those  manufactured  or  sold  by  another,  to  the  end  that  they  may 
be  known  in  the  market  as  his,  and  thus  enable  him  to  secure 
such  profits  as  result  from  a  reputation  for  superior  skill,  indus- 
try or  enterprise."  A  trade-mark  in  reality  is  a  notice  indicating 
the  origin  and  ownership  of  the  goods  to  which  it  is  applied,  and 
cannot  exist  apart  from  a  business  or  the  good-will  of  a  business. 

Trade-marks  are  of  the  most  ancient  origin.  When  Daniel 
was  delivered  into  the  den  of  lions,  we  read  in  the  Sixth  Chapter 
of  the  Book  of  Daniel,  verse  17 :  "A  stone  was  brought  and  laid 
upon  the  mouth  of  the  den,  and  the  King  sealed  it  with  his  own 
signet  and  the  signet  of  his  lords" ;  and  in  the  earliest  history 
of  commerce  frequent  references  are  made  to  the  subject  of 
trade-marks.  In  view  of  their  general  adoption  it  is  well  to 
inquire  briefly  into  the  law  regulating  their  application. 

The  right  to  the  use  of  a  trade-mark  is  one  which  acknowl- 
edges no  territorial  boundaries  and  is  not  limited  in  time;  it  is 
such  a  right  as  must  exist  exclusively  in  the  proprietor,  either 
individually  or  jointly  with  others,  and  may  be  regarded  as  one's 
commercial  signature.  To  prevent  the  public  from  being  de- 
ceived into  purchasing  the  goods  and  manufactures  of  one  person, 
supposing  them  to  be  those  of  another,  the  law  gives  to  the 
original  appropriator  of  a  distinctive  trade-mark  the  exclusive 
privilege  of  using  it,  and  a  Court  will  restrain  another  from 
using  it  or  award  damages  to  the  owner  for  such  unlawful  use 
thereof. 

The  object  of  using  a  trade-mark  is  to  bring  seller  and 
buyer  together,  that  the  one  may  sell  his  merchandise  and  the 
other  obtain  the  particular  goods  the  reputation  of  which  has 
won  his  confidence;  it  guarantees  to  the  purchaser  the  genuine- 
ness of  the  article  bought.  The  object  of  the  law  is  to  secure  to 
him  who  has  been  instrumental  in  bringing  into  the  market  a 

(3»9) 


320  TRADE-MARKS 

superior  article  of  merchandise  the  fruit  of  his  industry  and  skill, 
and  to  protect  the  community  from  imposition,  thus  preventing 
fraud  upon  the  manufacturer  and  deception  upon  the  public. 
The  adoption  of  a  trade-mark  to  indicate  the  manufacture  of  a 
certain  article  does  not  give  any  right  to  the  exclusive  production 
of  the  article  so  marked,  as  any  article  of  manufacture,  unless 
it  be  protected  by  a  patent,  may  be  sold  by  any  person,  it  being 
the  right  of  any  person  possessing  sufficient  skill  to  copy  or 
imitate  any  unpatented  article.  No  one,  however,  can  use  a 
trade-mark  to  pretend  that  the  goods  oflfered  by  him  are  the 
products  of  another.  The  theory  upon  which  the  law  of  trade- 
marks is  based  is  the  promotion  of  honesty  and  fair  dealing.  A 
trade-mark  does  not  partake  of  the  character  or  nature  of  a 
patent  or  copyright,  as  there  is  no  property  right  to  a  trade-mark 
apart  from  the  goods  to  which  it  is  applied.  Consequently  the 
right  to  a  trade-mark  is  one  which  can  be  tested  only  by  its 
violation.  So  long  as  no  one  imitates  the  trade-mark  the 
proprietor  has  no  means  of  testing  its  validity. 

It  is  necessary  to  distinguish  between  trade-marks  and  trade- 
names. A  manufacturer  may  have  no  trade-mark,  and  yet  may 
be  entitled  to  restrain  another  from  imitating  the  form,  color  or 
general  appearance  of  his  labels,  packages  or  articles,  from  in 
any  way  dressing  up  goods  so  as  to  cause  them  to  be  mistaken 
for  his,  or  from  resorting  to  any  trick  or  artifice  whereby  an- 
other's goods  are  palmed  off  on  the  public  as  his.  Such  actions 
involve  what  is  known  as  unfair  competition  in  trade,  which 
subject  will  be  discussed  hereinafter,  and  should  not  be  confused 
with  trade-marks. 

There  are  three  characteristics  of  a  technical  trade-mark: 
First,  it  must  point  distinctively,  either  by  its  own  meaning  or 
by  association,  to  the  origin  or  ownership  of  the  article  to  which 
it  is  affixed ;  second,  it  must  be  affixed  or  applied  to  a  commercial 
article ;  and,  third,  it  must  be  of  such  nature  that  it  can  be 
rightfully  appropriated  by  one  person  to  the  exclusion  of  all 
others. 

What  may  be  Appropriated  as  a  Trade-Mark. 

A  trade-mark  is  not  limited  to  a  device  or  name,  but  may 
consist  of  any  marks,  forms  or  syfnbols  which  serve  to  designate 
the  true  origin  or  ownership  of  the  article.  Fancy  names, 
whether  invented  or  arbitrary ;  the  names  of  places,  words  where 
applied  to  a  new  process  by  the  inventor,  the  name  of  an  article 


TRADE-MARKS  321 

which  alone  designates  its  origin  or  ownership,  letters  and 
numerals  combined  in  unusual  and  peculiar  forms,  or  with  other 
parts  composing  trade-marks,  have  been  held  under  the  particu- 
lar circumstances  of  the  various  cases  to  be  valid  trade-marks. 
A  man,  of  course,  may  adopt  for  a  trade-mark  whatever  he 
chooses,  but  when  he  asserts  and  seeks  to  enforce  exclusive 
rights  therein  it  becomes  necessary  to  ascertain  whether  it  is  just 
to  others  that  this  be  pennitted.  If  the  name,  device  or  descrip- 
tion is  purely  arbitrary  or  fanciful,  and  has  been  first  brought 
into  use  by  him,  his  right  to  the  exclusive  use  of  it  is  unques- 
tionable. No  exact  statement  of  what  a  trade-mark  may  consist 
can  be  made.  The  true  test  is,  was  the  mark  adopted  or  has  it 
come  by  use  to  indicate  primarily  the  origin  or  ownership  of  the 
article  to  which  it  is  applied?  Can  others,  with  equal  truth,  use 
it  for  the  same  or  a  like  article? 

A  proprietor  of  a  trade-mark  may  manufacture  and  sell 
several  different  grades  or  qualities  of  the  same  general  line  of 
goods,  and  may  adopt  a  separate  mark  for  each  quality  or  grade. 
If  the  primary  function  of  each  mark  is  to  denote  origin  or 
ownership  of  the  article  with  the  proprietor,  each  mark  will  be 
a  valid  trade-mark. 

Trade-marks  may  be  divided  into  those  which  are  personal 
and  those  which  are  impersonal.  A  personal  trade-mark  is  one 
which  will  indicate  to  the  public  that  some  particular  person  has 
given  his  personal  skill  to  the  production  of  the  article  to  which 
it  is  applied.  An  impersonal  trade-mark  is  one  which  does  not 
indicate  that  a  certain  article  is  the  product  of  the  skill  of  the 
owner  of  the  trade-mark,  but  which  points  to  him  as  the  owner  or 
proprietor  of  the  manufactory  or  business  in  which  such  articles 
are  produced.  Impersonal  trade-marks  may  be  strictly  local  or 
perhaps  become  so  by  usage,  and  indicate  origin  at  a  certain 
place  of  production,  without  reference  to  the  owner  of  the  mark. 
Such  a  trade-mark  passes  with  a  transfer  of  the  manufactory. 
Examples  of  this  class  of  trade-marks  are  found  in  the  names 
"Congress  Water"  and  "Bethesda  Water"  and  "Old  Oscar 
Pepper  Distillery,"  applied  to  the  whisky  produced  at  a  certain 
place. 

It  is  a  well-established  rule  that  a  trade-mark  must  not  be 
deceptive.  Common  words,  when  employed  as  trade-marks, 
must  not  give  a  false  impression  as  to  the  qualities,  ingredients 
or  characteristics  of  the  article.  The  word  "Home"  for  sewing 
machines,  "Star"  and  a  symbol  of  a  star  for  shirts,  "Royal"  for 
baking  powder,  "Yankee"  for  soap,  and  "Old  Crow"  for  whisky, 

21 


322  TRADE-MARKS 

are  examples  of  common  words  which  have  been  held  to  consti- 
tute valid  trade-marks.  The  trade-mark  must  not  be  deceptive, 
but  arbitrary  or  fanciful. 

Personal  Names  as  Trade-Marks. 

Considerable  doubt  has  existed  among  the  authorities  as  to 
whether  or  not  a  personal  name  may  be  used  as  a  trade-mark. 
A  personal  name  does  not  respond  to  the  tests  for  a  technical 
trade-mark,  for  the  reason  that  no  one  can  have  the  exclusive 
right  to  such  a  name  against  another  person  having  the  same 
name  and  using  it  in  good  faith.  There  is,  however,  no  reason 
against  appropriating  a  trade-mark  consisting  of  a  personal  name 
used  in  some  peculiar  or  distinctive  design  or  form.  It  has  been 
held  in  Pennsylvania  that  when  a  commercial  name,  not  the  sub- 
ject of  appropriation  as  a  trade-mark,  is  combined  with  other 
distinctive  features,  including  the  manufacturer's  name,  the  whole 
may  be  adopted  by  him  as  a  trade-mark,  and  he  will  be  entitled 
to  protection  against  such  a  fraudulent  imitation  of  his  wrappers 
and  labels,  bearing  such  trade-mark,  as  will  enable  others  to  de- 
ceive the  public  and  injure  his  business.  Hence,  when  the 
plaintiff,  in  the  case  in  mind,  adopted  a  trade-mark  consisting 
as  a  whole  of  printed  copies  of  the  medals  awarded  him  by  the 
United  States  Centennial  Commission,  with  words  "Dreydoppel's 
Borax  Soap"  printed  underneath,  and  used  it  upon  his  wrappers 
and  labels  he  is  entitled  to  the  exclusive  use  of  such  trade-mark, 
and  to  protection  against  infringement  of  it. 

Every  one  has  the  absolute  right  to  use  his  own  name  hon- 
estly in  his  own  business  for  the  purpose  of  advertising  it,  even 
though  he  may  thereby  incidentally  interfere  with  and  injure  the 
business  of  another  having  the  same  name.  Where,  however, 
two  persons  have  the  same  name  and  use  it  to  distinguish  an 
article  or  commodity  produced  by  them  of  like  character,  and  it 
is  clearly  shown  that  the  later  user  does  so  for  the  purpose  of 
imposing  his  own  article  upon  purchasers  for  the  prior  user's 
article,  which  has  become  well  established,  it  is,  on  the  part  of  the 
later  user,  an  imposition  upon  the  public  and  an  attempt  to  secure 
to  himself  what  rightfully  belongs  to  another.  To  illustrate: 
Every  one  is  familiar  with  the  widespread  reputation  of  the 
De  Long  Hook  and  Eye.  Suppose  a  rival  concern  employs  a 
man  by  the  name  of  De  Long  and  makes  him  its  president  or 
general  manager  and  thenceforth  advertises  the  De  Long  Hook 
and  Eye,  justifying  such  action  by  the  statement  that  its  president 


TRADE-MARKS  323 

is  named  De  Long  and  has  a  right  to  the  use  of  his  own  name. 
Under  such  circumstances  the  Court  would  restrain  the  second 
De  Long  from  imposing  his  own  article  upon  the  public  as  the 
original  De  Long  hook  and  eye.  Another  well-known  trade-mark 
involving  a  personal  name  is  that  of  "Roger  Brothers"  as  applied 
to  the  silverware  made  by  the  well-known  New  England  firm. 

A  newly-coined  word  constitutes  one  of  the  strongest  trade- 
marks, the  reason  for  which  is  obvious.  Such  a  word  is  usually 
meaningless  and  hence  can  be  either  descriptive  or  deceptive. 
To  entitle  the  originator  thereof  to  hold  such  a  word  as  a  valid 
trade-mark,  it  is  only  necessary  to  show  that  it  has  been  used  or 
applied  to  commercial  articles  for  the  purpose  of  indicating  the 
ownership  or  origin  of  the  same.  Illustrations  of  such  trade- 
marks are  found  in  the  words  "Sapolio"  as  applied  to  a  cleaning 
compound ;  "Cottolene"  as  applied  to  the  well-known  substitute 
for  lard ;  "Cuticura"  as  applied  to  a  medicinal  preparation ;  "No- 
To-Bac"  as  applied  to  a  medicine  to  cure  the  tobacco  habit,  and 
countless  other  words. 

Certain  phrases,  of  an  original  nature,  may  also  be  used  as 
valid  trade-marks,  as,  for  example,  the  phrase  "Coal  Oil  Johnny's 
Petroleum  Soap,"  "Lone  Jack"  to  indicate  a  brand  of  tobacco 
and  "La  Favorita"  a  brand  of  flour.  Numerals  have  also  been 
held  to  constitute  valid  trade-marks.  In  a  certain  case  the  manu- 
facturer of  steel  pens  had  for  many  years  manufactured  a  pecu- 
liar pattern  on  which  were  the  figures  "303"  and  the  words 
"Extra  Fine."  These  pens  were  put  up  in  paper  boxes  labeled 
with  the  same  numerals  and  words.  Another  manufacturer  be- 
gan to  make  and  sell  a  steel  pen  very  much  the  same  as  the 
original  manufacturer,  on  which  were  stamped  "303"  and  "Ester- 
brook  &  Co.,  Extra  Fine."  The  latter  was  sued  and  the  Supreme 
Court  held  that  he  had  no  right  to  use  numerals  and  words  which 
had  been  previously  appropriated  by  another  to  the  same  class 
of  goods. 

A  picture  which  is  neither  descriptive  nor  deceptive  may  be 
used  as  a  trade-mark,  either  alone  or  with  other  devices.  The 
Supreme  Court  of  Pennsylvania  has  held  that  a  representation 
of  a  cornucopia  printed  upon  cakes  of  butter  constituted  a  valid 
trade-mark.  It  may  be  laid  down  as  a  general  rule  of  trade-mark 
law  that  a  merely  geographical  term  cannot  be  used  as  a  trade- 
mark. A  geographical  term  may  acquire  a  secondary  meaning 
in  the  trade  from  having  been  long  used  as  a  designation  of  a 
particular  manufactured  article  and  thus  to  have  lost,  so  far  as 
such  article  is  concerned,  its  geographical  significance.    For  ex- 


324  JRADE-MARKS 

ample,  the  name  "Waltham"  on  watches  was  originally  used  as 
a  geographical  term,  but  through  continued  use  it  gradually 
acquired  a  secondary  meaning  as  a  designation  of  watches  of  a 
particular  class,  and  the  public  came  to  recognize  that  watches 
stamped  with  the  name  "Waltham"  were  made  by  the  American 
Waltham  Watch  Company.  Under  the  circumstances  of  this 
case,  the  name  "Waltham,"  although  geographical,  was  held  to 
be  a  valid  trade-mark. 

Registration  of  Trade-Marks. 

A  common  law  trade-mark  may  be  acquired  by  any  person, 
firm  or  corporation.  To  protect  the  owner  in  the  use  of  a  trade- 
mark, it  should  be  registered.  Space  will  not  permit  a  detailed 
discussion  of  what  may  and  what  may  not  be  registered  as  a 
trade-mark,  but  as  registration  of  all  marks  is  provided  for  by 
acts  of  Congress  of  February  20,  1905,  and  May  4,  1906,  it  is 
well  to  refer  to  these  Acts  for  the  law  at  present  in  force  in  this 
regard. 

It  is  provided  by  Congress  that  no  trade-mark  will  be  regis- 
tered to  an  owner  domiciled  in  the  United  States,  unless  it  is 
made  to  appear  that  the  same  is  used  as  such  by  said  owner  in 
commerce  among  the  several  States,  or  between  the  United  States 
and  some  foreign  nation  or  Indian  Tribe.  Any  owner  of  a  trade- 
mark who  shall  have  a  manufacturing  establishment  within  the 
territory  of  the  United  States  shall  be  accorded,  so  far  as  the 
registration  and  protection  of  trade-marks  used  on  products  of 
such  establishment  are  concerned,  the  rights  of  owners  of  trade- 
marks domiciled  within  the  territory  of  the  United  States. 

No  trade-mark  will  be  registered  which  consists  of  or  com- 
prises immoral  or  scandalous  matter,  or  which  consists  of  the 
flag  or  coat  of  arms,  or  other  insignia  of  the  United  States,  or 
any  simulation  thereof,  or  of  any  State  or  municipality,  or  of 
any  foreign  nation,  or  which  is  identical  with  a  registered  or 
known  trade-mark  owned  and  in  use  by  another,  and  appro- 
priated to  merchandise  of  the  same  general  character,  or  which 
so  nearly  resembles  a  registered  or  known  trade-mark  owned 
and  in  use  by  another,  as  to  cause  confusion  or  mistake  in  the 
mind  of  the  public  and  thus  deceive  purchasers.  No  trade-mark 
will  be  registered  which  merely  consists  in  the  name  of  an  indi- 
vidual, firm,  corporation  or  association,  not  written,  printed,  im- 
pressed or  woven  in  some  particular  or  distinctive  manner  or  in 
association  with  the  portrait  of  the  individual ;  no  portrait  of  a 


TRADE-MARKS  325 

living  individual  will  be  registered  as  a  trade-mark,  except  by 
the  consent  of  such  individual,  evidenced  by  some  instrument  in 
writing.  It  is  furthermore  provided  by  law  that  no  trade-mark 
will  be  registered  which  is  used  in  unlawful  business,  or  upon 
any  article  injurious  in  itself  or  which  has  been  used  with  the 
design  of  deceiving  the  public  in  the  purchase  of  merchandise, 
or  which  has  been  abandoned. 

Application  for  Registration. 

To  register  a  trade-mark,  the  rules  of  practice  of  the  Patent 
Office  require  that  an  application  must  be  made  to  the  Commis- 
sioner of  Patents  and  must  be  signed  by  the  applicant.  Such  an 
application  comprises  a  petition,  requesting  registration ;  a  state- 
ment setting  forth  the  name,  address  and  citizenship  of  the  owner 
of  the  mark;  the  class  of  merchandise,  and  the  particular  de- 
scription of  goods  comprised  in  such  class,  to  which  the  trade- 
mark is  attached ;  a  description  of  the  trade-mark  itself  is  only 
required  when  needed  to  express  colors  not  shown  in  the  drawing. 
The  statement  must  also  set  forth  the  mode  in  which  the  trade- 
mark is  affixed  to  the  goods,  and  the  length  of  time  during  which 
the  same  has  been  used.  If  the  applicant  is  a  corporation  it  must 
be  stated  under  the  laws  of  what  State  its  charter  was  granted. 
Besides  the  petition  and  statement,  a  declaration  mvjst  be  filed 
as  part  of  the  application  which  is  in  the  nature  of  an  oath  veri- 
fying the  truth  of  the  facts  contained  in  the  statement.  A  draw- 
ing of  the  trade-mark  must  also  be  furnished  to  the  Patent 
Office,  which  drawing  shall  be  a  fac-simile  of  the  mark  as  used 
upon  the  goods.  Furthermore,  five  specimens  of  the  trade-mark 
must  be  forwarded  with  the  application.  The  charge  of  reg- 
istering a  mark  is  ten  dollars,  which  must  be  paid  upon  filing 
the  application. 

Duties  of  Registrants. 

A  complete  application  for  the  registration  of  a  trade-mark 
is  considered  in  the  first  instance,  by  the  examiner  in  charge  of 
trade-marks.  Whenever  on  examination  of  an  application,  reg- 
istration is  refused  for  any  reason  whatever,  the  applicant  will 
be  notified  thereof.  The  reasons  for  such  refusal  will  be  stated, 
and  such  information  and  references  will  be  given  as  may  be 
useful  in  aiding  the  applicant  to  judge  of  the  propriety  of  further 
prosecuting  his  application. 

If  on  examination  of  an  application  for  the  registration  of  a 


326  TPIADE-MARKS 

trade-mark  it  shall  appear  that  the  applicant  is  entitled  to  have 
his  trade-mark  registered  under  the  provisions  of  the  law,  the 
mark  will  be  published  in  the  official  gazette  (a  Patent  Office 
publication)  at  least  once,  which  publication  shall  be  at  least 
thirty  days  prior  to  the  date  of  registration.  The  Act  of  Con- 
gress of  February  20,  1905,  provides  that  if  no  notice  of  opposi- 
tion be  filed  within  thirty  days  after  such  publication,  the  applicant 
or  his  attorney  will  be  duly  notified  of  the  allowance  of  his 
application,  and  a  certificate  of  registration  will  be  issued. 

It  is  provided  by  the  Rules  of  Practice  of  the  Patent  Office 
that  whenever  application  is  made  for  the  registration  of  a  trade- 
mark which  is  substantially  identical  with  a  trade-mark  appro- 
priated to  the  goods  of  the  same  descriptive  properties,  for 
which  a  certificate  of  registration  has  been  previously  issued  to 
another  or  for  the  registration  of  which  another  had  previously 
made  application,  or  which  so  nearly  resembles  such  trade-mark 
or  a  known  trade-mark  owned  and  used  by  another,  and  is  in  the 
opinion  of  the  Commissioner  likely  to  be  mistaken  therefor  by 
the  public,  an  interference  will  be  declared. 

Any  person  who  believes  he  will  be  damaged  by  the  regis- 
tration of  a  trade-mark  may  oppose  the  same  by  filing  in  dupli- 
cate a  written  notice  of  opposition,  setting  forth  the  grounds  of 
objection.  Such  notice  of  opposition  is  required  to  be  filed  within 
thirty  days  after  the  publication  of  the  trade-mark.  If  any  per- 
son considers  himself  to  be  injured  by  the  registration  of  a 
trade-mark  in  the  Patent  Office,  he  may  at  any  time  make  appli- 
cation to  the  Commissioner  of  Patents  to  cancel  the  registration 
thereof.  Such  application  must  be  filed  in  duplicate  and  set  forth 
fully  the  grounds  upon  which  cancellation  is  asked. 

After  the  requirements  of  the  law  have  been  complied  with, 
and  the  Patent  Office  has  held  a  trade-mark  to  be  registrable, 
a  certificate  will  be  issued,  signed  by  the  Commissioner  of 
Patents,  under  the  seal  of  the  Patent  Office,  to  the  eflFect  that 
the  applicant  has  complied  with  the  law  and  that  he  is  entitled 
to  the  registration  of  his  trade-mark.  A  certificate  of  registration 
of  a  trade-mark  shall  remain  in  force  for  the  period  of  twenty 
years  from  its  date,  except  that  in  case  a  trade-mark  has  been 
previously  registered  in  a  foreign  country,  such  certificate  shall 
cease  to  be  in  force  on  the  day  on  which  the  trade-mark  ceases 
to  be  protected  in  such  foreign  country,  and  shall,  under  no 
circumstances,  remain  in  force  more  than  twenty  years  unless 
renewed. 

The  law  provides  that  a  certificate  of  registration  may  be 


TRADE-MARKS  327 

renewed  from  time  to  time  for  like  periods.  Application  for 
renewal  may  be  made  at  any  time  not  more  than  six  months  prior 
to  the  expiration  of  the  period  for  which  the  certificate  of 
registration  was  issued  or  renewed. 

Assignments. 

Any  registered  trade-mark  and  every  trade-mark,  for  the 
registration  of  which  application  has  been  made,  is  assignable 
in  connection  with  the  good-will  of  the  business  in  which  the 
trade-mark  is  used.  Such  assignment  must  be  made  in  writing 
and  should  be  recorded  in  the  Patent  Office.  No  assignment  will 
be  recorded  unless  in  the  English  language  and  unless  an  applica- 
tion for  the  registration  of  the  trade-mark  shall  have  been  first 
filed  in  the  Patent  Office.  The  assignment  must  identify  the 
application  by  a  serial  number  and  filing  date,  or  when  the  trade- 
mark has  been  registered,  by  the  certificate  number  and  date  of 
issue.  An  assignment  of  a  trade-mark  is  void  by  law,  as  against 
any  subsequent  purchaser  without  notice,  unless  it  has  been  re- 
corded in  the  Patent  Office  within  three  months  from  the  date 
of  its  issue.  The  certificate  of  registration  may  be  issued  to  the 
assignee  of  the  applicant,  but  it  is  necessary  that  the  assignment 
must  be  first  entered  of  record  in  the  Patent  Office.  The  official 
gazette  of  the  Patent  Office  contains  a  list  of  all  trade-marks 
registered,  giving  in  each  case  a  statement  of  address  of  the 
applicant,  the  date  of  filing  and  serial  number  of  application,  and 
the  date  of  publication  of  the  trade-mark  in  the  official  gazette. 
The  United  States  Statutes  concerning  the  registration  of  trade- 
marks with  the  rules  of  the  Patent  Office  relating  thereto  may 
be  obtained  upon  request  to  the  Commissioner  of  Patents. 

The  duty  is  imposed  by  law  upon  every  registrant  to  give 
notice  to  the  public  that  the  trade-mark  is  registered,  either  by 
affixing  thereon  the  words,  "Registered  in  the  United  States 
Patent  Office."  or  "Reg.  U.  S.  Pat.  OflF.,"  or  when  from  the 
character  and  size  of  the  trade-mark,  or  from  its  manner  of  at- 
tachment to  the  article  to  which  it  is  appropriated  this  cannot 
be  done,  then  by  affixing  a  label  containing  a  like  notice  to  the 
package  or  receptacle  wherein  the  article  or  articles  are  inclosed ; 
otherwise  if  suit  for  infringement  of  the  trade-mark  is  brought, 
no  damages  can  be  recovered  except  on  proof  that  the  defendant 
was  duly  notified  of  infringement  and  continued  the  same  after 
such  notice. 

As  a  protection  to  domestic  manufacturers  and  traders.  Con- 


328  TRADE-MARKS 

gress  has  provided  by  law  that  no  article  of  imported  merchan- 
dise shall  be  admitted  to  entry  at  any  custom  house  of  the  United 
States  which  shall  copy  or  simulate  the  name  of  any  domestic 
manufacturer  or  trader,  or  of  any  manufacturer  or  trader  located 
in  any  foreign  country  which  by  treaty  affords  similar  privileges 
to  citizens  of  the  United  States,  or  which  shall  copy  or  simulate 
a  trade-mark  registered  in  accordance  with  the  laws  of  this  coun- 
try. It  is  further  provided  that  no  imported  goods  shall  be 
admitted  into  the  custom  houses  of  the  United  States  which  shall 
bear  a  name  or  mark  calculated  to  induce  the  public  to  believe 
that  the  article  is  manufactured  in  the  United  States. 

Abandonment. 

A  trade-mark,  whether  it  consists  of  symbol  or  name,  may 
be  abandoned,  and  if  it  is  it  may  then  be  appropriated  by  any 
one,  who  by  so  doing  adopts  it  as  his  own,  or  after  it  is  aban- 
doned, it  may  be  resumed  by  the  original  proprietor,  and  re- 
adopted  by  him.  It  has  been  held  that  the  consent  of  a 
manufacturer  to  the  use  or  imitation  of  his  trade-mark  by  another 
may  be  inferred  from  his  knowledge  and  silence.  A  complete 
disuse  of  a  trade-mark  amounts  to  an  abandonment  thereof,  and 
thereafter  the  same  may  be  appropriated  by  others. 

The  transfer  of  the  property  and  effects  of  a  business  car- 
ries with  it  the  exclusive  rights  to  use  such  trade-marks  or  trade 
names  as  have  been  used  in  such  business,  these  incidents  being 
attached  to  the  business  or  right  of  manufacture  and  pass  with 
it,  for,  as  has  been  pointed  out  previously,  a  trade-mark  has  no 
separate  existence,  there  being  no  property  in  words,  as  detached 
from  the  thing  to  which  they  are  applied.  Therefore,  a  con- 
veyance of  the  thing  to  which  a  name  or  trade-mark  is  attached 
carries  the  same  with  it. 

It  is  possible  for  a  person  to  assign  lawfully  and  sell,  not 
only  a  trade-mark  indicative  of  origin  in  himself,  but  even  the 
right  to  use  his  own  name  in  connection  with  a  particular  busi- 
ness, and  the  assignee  will  thereby  become  entitled  to  the  exclu- 
sive use  of  the  name,  even  as  against  the  assignor.  Of  course,  a 
person  is  entitled  to  use  his  own  name  in  conducting  a  business 
or  in  connection  with  others,  if  done  in  a  proper  and  legitimate 
way,  and  this  is  a  very  valuable  right  especially  when  he  is  the 
discoverer  of  a  valuable  article  of  trade  then  being  manufactured 
and  sold  in  the  market.  But  this  right,  the  same  as  other  property 
rights,  is  subject  of  sale  or  transfer  and  any  person  who  has  car- 


TRADE-MARKS  339 

ried  on  business  under  a  trade  name,  or  who  has  made  and  sold 
a  particular  article  in  such  a  manner  as  by  the  use  of  his  name  to 
cause  the  business  to  become  known  and  established  in  favor 
under  such  name,  can  sell  or  assign  the  same  when  he  sells  his 
business  and  thereby  deprive  himself  of  the  further  use  of  his 
own  name.  Upon  the  principle,  when  a  partnership  is  formed  to 
manufacture  the  article  to  which  a  trade-mark  is  properly  applied, 
the  trade-mark  of  one  partner  becomes  part. of  the  partnership 
property.  If  a  partnership  is  doing  business  in  two  cities,  and 
expires  by  limitation  of  time,  and  one  of  the  partners  continues 
to  conduct  the  business  at  the  old  location  in  one  city,  he  would 
acquire  the  right  to  do  so,  and  the  same  right  would  also  exist 
in  favor  of  the  other  partner  conducting  the  same  business  in  the 
other  city. 

Where  a  trade-mark  consisting  of  the  name  of  an  individual 
was  used  to  denote  an  article  made  by  a  firm  of  which  he  has 
been  a  member  the  Court  held  that  such  a  name  was  not  guaranty 
that  the  goods  were  made  by  the  individual  personally ;  that  the 
use  of  the  name  by  an  assignee  was  not  a  fraud  upon  the  public 
and  consequently  the  sale  of  the  right  was  valid. 

It  is  well  to  remember  in  connection  with  the  sale  or  assign- 
ment of  trade-marks  that  a  trade-mark  cannot  be  levied  upon 
and  sold  under  execution  as  a  species  of  tangible  property  unless 
a  local  statute  confers  such  right.  A  statute  is  not  to  be  con- 
strued, however,  as  authorizing  any  one  to  purchase  a  trade-mark 
and  affix  it  on  his  own  product  where  such  a  construction  would 
permit  of  a  fraud  or  deception  upon  the  public. 

We  have  heretofore  referred  to  unfair  competition  in  trade, 
and  as  there  are  few  questions  of  more  importance  to  the  business 
man,  we  will  inquire  briefly  into  the  elements  constituting  such 
unlawful  competition. 

The  law  of  unfair  competition  in  trade  is  of  comparatively 
recent  development,  but  a  set  of  rules  has  now  been  adopted  by 
our  Courts  by  which  persons  who  have  no  technical  trade-marks 
are  protected  in  the  use  of  personal  and  descriptive  name-marks, 
labels,  forms  of  packages  and  wrappers  or  other  insignia  which 
have  become  associated  with  their  business  or  products.  Com- 
petition is  the  life  of  trade,  but  it  is  the  policy  of  the  law  to 
foster  honest  competition,  and  no  Court  will  countenance  fraud 
or  dishonesty  under  the  guise  of  business  competition.  Concisely 
stated,  the  law  will  prevent  rival  manufacturers  from  begin'ling 
the  public,  by  means  of  imitative  devices,  into  buying  their 
products  under  the  false  impression  that  they  are  purchasing  a 


330  TRADE-MARKS 

rival's  goods.  In  this  connection  it  is  important  to  distinguish 
between  the  infringement  of  a  trade-mark  and  unfair  competition. 
The  former  consists  in  the  unlawful  use  by  one  of  the  trade-mark 
of  another,  whereas  unfair  competition  is  the  simulation  by  one 
of  the  packages  and  products  of  another  for  the  purpose  of  de- 
ceiving the  public.  Two  rivals  in  business  may  have  an  equal 
right  to  use  the  same  words,  marks  or  symbols  on  similar  articles 
manufactured  by  both,  but  if  such  words,  marks  or  symbols  were 
used  by  one  before  the  other,  the  latter  may  be  restrained  by 
legal  process  from  using  the  same  marks  on  similar  goods. 

The  right  to  use  a  corporate  name  is  also  involved  in  the 
subject  under  discussion.  Ordinarily  such  right  is  protected  by 
positive  statute,  and  may  also  be  protected  as  a  trade-name.  If 
not,  it  will  be  protected  under  the  general  principles  which  govern 
unfair  competition.  Thus,  the  outgoing  stockholders  of  a  cor- 
poration, the  most  distinguishing  part  of  whose  names  the 
corporation  bears,  have  no  right  to  compete  in  business  under  a 
corporate  name  so  nearly  like  the  first  as  to  mislead  customers. 
A  corporation  is,  therefore,  compelled  to  adopt  a  name  sufficiently 
distinctive  as  to  avoid  becoming  confused  with  the  corporate 
name  of  a  competitor.  Many  products,  particularly  compounds, 
medicines,  etc.,  are  manufactured  under  secret,  but  not  patented 
processes.  It  can  readily  be  seen  that  unless  the  law  prevented, 
an  employee  could  learn  the  secrets  of  his  employer  and  set  up 
an  establishment  of  his  own,  and  appropriate  valuable  processes 
for  his  own  profit.  The  manufacturer  of  such  articles  or  products, 
to  prevent  such  a  contingency,  generally  requires  his  employees  to 
agree  not  to  disclose  or  use  the  trade  secrets  imparted  to  them. 
The  law,  whose  policy  it  is  to  establish  and  maintain  a  high 
standard  of  business  morality,  will  enforce  such  an  agreement 
and  hold  liable  any  employee  who  is  guilty  of  a  breach  thereof. 

If  a  member  of  a  partnership  obtains  information  of  a  secret 
nature  while  transacting  partnership  business  he  will  be  liable 
to  account  to  the  firm  for  any  profit  he  may  obtain  from  the  use 
of  such  information.  Frequently  an  employee  who  severs  his  con- 
nection with  his  employer  to  engage  in  business  for  himself 
advertises  the  fact  of  his  former  employment.  The  mere  adver- 
tisement of  the  "late  with"  any  well-known  firm,  even  when 
done  for  the  purpose  of  drawing  a  part  of  the  custom  of  the  old 
firm,  is  not  in  itself  unfair  competition. 

A  merchant  has  no  right  to  apply  the  name  of  a  well-known 
article  or  commodity  to  goods  of  inferior  quality.  Every  one 
has  doubtless  heard  of  Dr.  Jaeger's  sanitary  woolen  underwear. 


TRADE-MARKS  331 

Dr.  Jaeger  was  a  scientist  who  gave  to  the  world  a  system  of  all- 
wool  underwear.  He  was  a  philanthropist,  not  a  manufacturer 
or  dealer.  Under  an  agreement  with  the  scientist,  a  firm  made 
and  sold  such  underwear  in  strict  accordance  with  the  system.  A 
competitor  adopted  Dr.  Jaeger's  name  to  designate  the  kind  and 
quality  of  his  goods,  but  sold  as  the  same  kind  of  underwear  an 
inferior  article  containing  more  or  less  cotton.  It  \^s  held  by 
the  Court  that  such  use  of  Dr.  Jaeger's  name  was  a  deceptive 
misrepresentation  and  constituted  unfair  competition. 

A  Court  will  order  an  injunction  to  prevent  unfair  competi- 
tion consisting  of  the  use  of  signs  or  tokens  which  serve  to 
confuse  the  identity  of  one  man's  business  with  that  of  another. 
A  manufacturer's  distinctive  advertisements  cannot  be  imitated 
by  devices  which  involve  nothing  original,  and,  although  not 
identical  in  every  regard,  are  so  similar  as  to  be  readily  mistaken 
for  the  original  by  the  ordinary  purchaser. 

There  is  no  especial  right  to  the  use  of  a  family  name  which 
has  become  a  trade-mark  applied  to  a  manufactured  article  by 
reason  of  the  relation  which  the  descendants  bear  to  the  original 
manufacturer  of  the  same  name.  In  a  quite  recent  case  the 
defendants  were  the  selling  agents  of  the  "Remingfton-Sholes" 
typewriters,  which  were  manufactured  by  the  descendants  of 
the  original  Remingtons.  The  descendants  of  the  original  manu- 
facturers became  members  of  a  corporation  which  made  a 
typewriter  under  the  name  of  "Sholes,"  which  was  then  changed 
to  the  "Remington-Sholes."  As  a  purchaser  of  the  typewriter 
might  be  led  to  think  that  the  addition  of  the  name  "Sholes"  was 
a  new  style  of  the  old  machine  coming  from  the  same  source,  the 
use  of  the  name  "Remington"  was  held  to  be  an  attempt  to 
deceive  the  public  and  was  therefore  unlawful. 

A  manufacturer  may  indicate  his  goods  by  a  particular  label 
or  wrapper,  and  he  will  be  protected  in  its  use.  Such  labels  are 
used  for  the  purpose  of  distinguishing  the  goods  to  which  they 
are  attached  from  those  manufactured  by  other  parties,  and  when 
another  person  uses  the  same  label  or  a  colorable  imitation  thereof 
the  result  is  the  same  as  in  the  case  of  the  imitation  of  a  trade- 
mark. A  Court  of  Equity  will  restrain  the  person  from  selling 
labels  to  parties  who  use  them  in  unfair  competition  with  the 
business  of  another;  a  person  may  acquire  an  exclusive  right  to 
use  a  package  of  a  fixed  shape,  style  and  dimensions,  with  em- 
blems, labels  or  other  devices  thereon.  Thus  in  a  well-known 
case,  where  the  general  appearance  of  the  bottles  and  labels  used 
in  marketing  a  preparation  known  as  "Castoria"  was  so  nearly 


332  TRADE-MARKS 

like  that  used  by  another  party  for  many  years  in  the  sale  of 
his  preparation  under  the  same  name,  as  to  deceive  the  ordinary 
purchaser,  it  was  held  that  the  right  to  an  injunction  was  not 
defeated  because  changes  had  been  made  in  the  shape  and  color 
of  the  bottle  and  in  the  tint  of  the  label,  where  the  changes  were 
so  slight  as  not  to  attract  general  attention.  . 

In  conclusion,  it  may  be  stated,  in  the  language  of  a  noted 
jurist,  that  the  theory  upon  which  the  law  regulating  business 
competition  is  founded,  is  to  protect  the  user  of  a  name,  mark, 
label  or  other  device  which  is  of  value  to  him,  from  attack  by 
"the  piratical  craft  which  infest  the  seas  of  modern  business.*' 


ASSIGNMENT  OF  COPYRIGHT 

^^i0  InHtnttttt,  Made  the  day  of  , 

19    ,  between  of  ,   hereinafter  called 

the  vendor,  of  the  one  part,  and  of  , 

hereinafter  called  tJie  purchaser,  of  the  other  part:  Whereas  the  said 
vendor  is  the  author  and  absolute  proprietor  of  the  copyright  of  a  book 
or  work  entitled,  etc.;  and  has  agreed  with  the  said  purchaser  for  the 
absolute  sale  to  him  of  the  said  copyright  free  from  incumbrances,  at 
the  price  of  dollars;  Now  this  indenture  witnesseth, 

that,  in  pursuance  of  the  said  agreement,  and  in  consideration  of  the 
sum  of  dollars  by  the  said  purchaser  to  the  said  vendor 

now  paid,  the  receipt  whereof  is  hereby  acknowledged,  the  said  vendor 
hereby  assigns,  and  as  absolute  owner  conveys  unto  the  said  pur- 
chaser, his  executors,  administrators,  and  assigns,  the  unincumbered 
copyright  of  and  sole  privilege  of  printing  all  that  the  said  book  or 
work  entitled,  etc.;  and  all  future  impressions  of  the  said  work. 
To  have,  hold,  exercise  and  enjoy  the  said  copyright  and  premises 
unto  the  said  purchaser,  his  executors,  administrators,  and  assigns, 
henceforth  during  the  residu£  of  the  term  of  the  said  copyright  now 
unexpired,  for  his  and  their  own  use  and  benefit,  but  subject  always 
to  such  right  as  may  now  be  subsisting  in  the  publisher  or  proprietor 
of  the  last  edition  of  the  said  book  or  work  to  prevent  the  publication 
of  any  future  edition  of  the  same  until  such  last  edition  shall  be  out  of 
print. 

In  (lfllitne00.  etc. 


COPYRIGHTS. 

Origin  and  Development — How  Secured — Infringement — Publi- 
cation. 

NO  BETTER  title  to  property  can  exist  than  that  acquired 
by  production,  on  the  principle  that  to  him  belongs  the 
harvest  whose  toil  has  produced  it;  to  him  the  fruit  who 
has  planted  the  tree.  This  is  the  natural  mode  of  acquiring 
property.  Ownership,  therefore,  is  created  by  production,  and 
the  producer  becomes  the  owner,  which  principle  applies  to  all 
kinds  of  labor,  whether  of  the  body  or  of  the  mind.  As  to  works 
of  imagination  and  reasoning,  if  not  of  memory,  the  author  may 
be  said  to  create,  and  in  all  departments  of  mind  new  books  are 
the  product  of  the  labor,  skill  and  capital  of  the  author.  The 
subject  of  property  is  the  order  of  words  in  the  author's  com- 
position ;  not  the  words  themselves,  which  may  be  said  to  be 
analogous  to  the  elements  of  matter,  which  cannot  be  appro- 
priated unless  combined.  The  nature  of  the  right  of  an  author 
in  his  works  is  analogous  to  the  rights  of  ownership  in  other 
personal  property. 

The  origin  of  the  sole  rights  of  an  author  to  publish  his 
book  for  a  limited  period  of  years  may  be  placed  in  the  reign 
of  Queen  Anne  of  England  (1710),  when  Parliament  passed  an 
act  for  the  encouragement  of  learning,  although  the  exclusive 
right  reserved  to  an  author  is  believed  by  some  to  exist  inde- 
pendently of  statute.  Blackstone  in  his  famous  "Commentaries 
on  the  English  Law"  says:  "The  identity  of  a  literary  compo- 
sition consists  entirely  in  the  sentiment  and  the  language;  the 
same  conceptions,  clothed  in  the  same  words,  must  necessarily  be 
the  same  composition,  and  whatever  method  be  taken  of  exhibiting 
that  composition  to  the  ear  or  the  eye  of  another,  by  recital,  by 
writing,  or  by  printing,  in  any  number  of  copies,  or  at  any  period 
of  time,  it  is  always  the  identical  work  of  the  author  which  is  so 
exhibited ;  and  no  man  can  have  a  right  to  exhibit  it,  especially 
for  profit,  without  the  author's  consent." 

Before  publication  an  author  has  in  the  fruits  of  his  intellec- 
tual labor  a  property  as  whole  and  as  inviolable  as  that  which 
exists  in  material  possessions ;  he  has  supreme  control  over  such 
productions;  may  exclude  others  from  their  enjoyment  and  dis- 

(333) 


334  COPYRIGHTS 

pose  of  them  as  he  pleases.  It  is  undoubted  that  an  author  has 
such  powers  while  his  work  is  in  manuscript.  When,  however, 
an  author  publishes  his  work,  his  right  to  exclusively  control  the 
same  depends  upon  statute  law. 

The  first  legislation  on  the  subject  of  literary  property  in 
the  United  States  appears  at  the  close  of  the  Revolutionary  war, 
when  Massachusetts  and  Connecticut  passed  a  law  to  secure  to 
every  author  the  profits  that  might  arise  from  the  sale  of  his 
works.  Article  I,  section  8,  of  the  Constitution  of  the  United 
States  empowered  Congress  "To  promote  the  progress  of  science 
and  useful  arts  by  securing  for  limited  times  to  authors  and 
inventors  the  exclusive  right  to  their  respective  writings  and 
discoveries."  In  pursuance  of  this  power  Congress  has  enacted 
certain  laws  regulating  copyrights,  which  it  will  be  our  purpose 
briefly  to  consider. 

The  law  regulating  copyrights  at  present  prevailing,  is  to  be 
found  in  the  Act  of  Congress,  dated  March  4,  1909,  which 
went  into  effect  on  July  i,  1909. 

The  right  to  protection  vests  immediately  upon  the 
publication  of  such  work  as  comes  within  the  purview  of  the 
statute  with  notice  of  copyright,  which  shall  consist  either 
of  the  word  "copyright,"  or  the  abbreviation  "cpr.," 
accompanied  by  the  name  of  the  copyright  proprietor,  and  the 
year,  and  such  notice  shall  be  affixed  to  each  copy  thereof 
published  or  offered  for  sale  in  the  United  States,  by  authority 
of  the  copyright  proprietor.  As  soon  as  a  copyright  has  been 
secured  by  publication  of  the  work  with  the  notice  of  copy- 
right as  above  set  forth,  registration  thereof  should  be  made 
by  depositing  two  complete  copies  of  the  best  edition  thereof 
with  the  Register  of  Copyrights  in  the  office  of  the  Librarian 
of  Congress.  If  a  book  or  other  publication  is  sought  to  be  copy- 
righted, notice  thereof  shall  be  placed  on  the  title  page  or  the 
page  immediately  following. 

The  works  for  which  copyrights  may  be  secured  shall  in- 
clude, generally  speaking,  all  the  writings  of  an  author.  Any 
book,  periodical,  newspaper,  lecture,  sermon  or  address  pre- 
pared for  oral  delivery,  dramatic  or  musical  compositions, 
maps,  works  of  art,  models  or  designs  for  works  of  art, 
photographs,  prints,  pictorial  illustrations,  and  drawings  or 
plastic  works  of  a  scientific  or  technical  character  constitute 
proper  subject  matter  for  copyrights. 

The  privileges  conferred  by  the  Act  may  be  enjoyed  for 
a  period  of  twenty-eight  years,  and  may  in  certain  cases  be 


COPYRIGHTS  335 

renewed  for  a  further  term  of  twenty-eight  years  provided 
application  therefor  be  made  within  one  year  prior  to  the 
expiration  of  the  term  of  the  original  copyright. 

It  is  required  that  applicants  for  registration  of  copyrights 
shall  be  citizens  of  the  United  States  or  citizens  of  countries 
granting  reciprocal  copyright  privileges,  which  shall  be 
determined  by  proclamation  by  the  President  of  the  United 
States.  With  but  few  exceptions,  the  mechanical  labor  in 
connection  with  the  publication  of  a  work  fonning  the  subject 
matter  of  copyrights  must  be  performed  within  the  United 
States  in  order  to  entitle  the  author  or  proprietor  thereof,  to  the 
protection  of  the  law.  Affidavit  to  this  fact  must  accompany  the 
application  for  registration. 

The  cost  of  obtaining  registration  is  one  dollar,  which  sum 
includes  a  certificate  of  registration. 

Upon  securing  registration  of  a  claim  for  copyright,  the 
owner  or  proprietor  thereof,  shall  have  the  power  to  print, 
re-print,  publish,  copy,  and  vend  the  copyrighted  work.  He  is 
also  vested  with  the  right  to  translate  the  copyrighted  work  to 
other  languages  and  dialects,  if  it  be  a  literary  work ;  to  deliver 
or  authorize  the  public  delivery  of  the  copyrighted  work  for 
profit  if  it  be  a  lecture,  sermon,  address  or  similar  production ; 
and  to  perfonn  same  if  it  be  a  dramatic  work  or  musical 
composition. 

The  owner  or  proprietor  of  a  copyrighted  work  may  prevent 
its  infringement  by  resorting  to  the  equitable  remedy  of  injunc- 
tion. Damages  may  also  be  recovered  to  compensate  for  the 
loss  or  injury  effected  by  the  infringement  and  in  the  event 
that  infringeinent  is  wilful,  same  may  be  punished  by  fine  and 
imprisonment. 

Publication. 

It  is  important  to  understand  clearly  what  constitutes  a  pub- 
lication as  an  intellectual  production.  To  publish  a  thing  is  to 
make  it  public  by  any  means  or  in  any  manner  in  which  it  is 
capable  of  being  communicated  to  the  public.  Literary,  dramatic 
and  musical  compositions  may  be  published  by  being  read,  repre- 
sented or  performed,  or  by  the  circulation  of  printed  or  manu- 
script copies.  Paintings  and  works  of  sculpture  are  published 
when  they  are  exhibited  to  the  public.  A  person  has  no  right  to 
report  a  lecture  or  other  written  discourse  which  its  author 
delivers  before  a  public  audience,  and  which  he  desires  again  to 
use  in  like  manner  for  his  own  profit,  and  to  publish  it  without 


336  COPYRIGHTS 

his  consent,  or  to  make  any  use  of  a  copy  thus  obtained.  The 
student  who  attends  a  medical  lecture  may  have  a  perfect  right 
to  remember  as  much  as  he  can  and  afterward  to  use  the  infor- 
mation thus  acquired  in  his  own  medical  practice,  or  to  communi- 
cate it  to  students  or  classes  of  his  own,  without  involving  the 
right  to  commit  the  lecture  to  writing  for  the  purpose  of  pub- 
lishing it  subsequently,  either  in  print  or  by  oral  delivery.  On 
the  same  principle  it  has  been  held  that  any  one  of  an  audience 
at  a  concert  or  opera  may  play  a  tune  which  his  ear  has  enabled 
him  to  catch,  or  sing  a  song  which  he  may  carry  away  in  his 
memory,  for  his  own  entertainment  or  that  of  others,  but  he 
would  have  no  right  to  copy  or  publish  the  same. 

An  immoral,  seditious,  blasphemous  or  libellous  work  can- 
not be  copyrighted,  and  consequently  if  the  author  has  published 
a  work  of  this  kind  he  cannot  prevent  any  one  else  from  repub- 
lishing it. 

Unless  copyright  is  claimed  by  printing  a  notice  to  that 
eflfect,  a  w^ork  once  published  becomes  public  property.  A  letter 
written  in  the  course  of  an  ordinary  correspondence  is  the 
literary  property  of  the  writer,  and  the  party  receiving  such 
a  letter  has  no  right  to  make  its  contents  public.  The  law  on 
this  point  was  established  as  early  as  1741,  when  the  Court 
restrained  a  certain  bookseller  from  publishing  the  private  cor- 
respondence between  Alexander  Pope  and  Dean  Swift.  This 
doctrine  is  not  based  on  considerations  of  policy  or  social  ethics, 
but  on  the  ground  that  the  writer  has  a  property  interest  in  his 
own  letters. 

The  word  "book"  as  used  in  the  copyright  statutes  has  a 
wide  significance.  It  need  not  be  a  volume  made  up  of  several 
sheets  bound  together.  The  literary  property  intended  to  be 
protected  by  the  act  is  not  determined  by  the  size,  form  or  shape 
in  which  it  makes  its  appearance,  but  by  the  subject  matter  of  the 
work.  In  fact,  it  has  been  held  that  a  diagram  with  directions 
for  cutting  garments,  printed  on  a  single  sheet,  was  a  book  within 
the  meaning  of  the  statute. 

The  name  or  title  of  a  book,  magazine  or  newspaper  cannot 
be  copyrighted,  a  title  being  treated  as  a  trade-mark.  Any  sub- 
sequent editions  of  a  work  not  differing  from  the  first  are  pro- 
tected by  the  original  copyright.  Compilations  which  comprise 
selecting,  arranging  and  combining  old  material  in  a  new  form 
may  be  copyrighted. 

An  advertisement  which  has  no  other  use  or  value  than  to 
make  known  the  place  and  kind  of  business  of  the  advertiser  is 


COPYRIGHTS  337 

not  within  the  scope  of  the  copyright  law.  But  information  and 
the  results  of  learning  valuable  to  others  than  the  advertiser 
may  be  contained  in  an  advertisement.  For  example,  a  dealer 
may  give  interesting  facts  concerning  bronzes,  pottery,  furniture 
or  other  articles  in  an  advertisement.  If  so,  he  would  be  entitled 
to  protect  the  same  by  copyright. 

The  test  of  what  may  be  copyrighted  is  originality.  In  the 
most  original  works  of  modern  genius  thoughts  and  sentiments 
are  found  as  old  as  language  itself.  Strictly  speaking,  nothing 
is  original,  but  the  object  of  the  law  is  to  promote  learning  and 
useful  knowledge  by  protecting  the  fruits  of  intellectual  activity. 
Hence  the  term  "originality"  has  a  very  broad  meaning  in 
connection  with  copyrights. 

Piracy. 

Piracy  is  the  use  of  literary  property  in  violation  of  the  legal 
rights  of  the  owner.  The  true  test  of  piracy  is  not  whether  a 
composition  is  copied  in  the  same  language  or  the  exact  words 
of  the  original,  but  whether  its  substance  is  reproduced. 

The  law  encourages  certain  uses  of  a  copyrighted  work.  A 
critic  or  reviewer  may  make  liberal  quotations  from  the  original 
work,  with  or  without  acknowledgment  of  the  source,  and  either 
for  favorable  or  unfavorable  comment. 

The  owner  of  a  copyright  may  license  another  to  publish 
his  work  as  well  as  assign  his  interest  thereunder.  Joint  owners 
of  a  copyright  may  make  a  contract  among  themselves  as  to 
printing  and  publishing  their  work,  and  one  of  them  cannot  set 
up  as  against  another  his  original  rights  as  a  joint  owner  in 
violation  of  such  contract. 


How  to  Obtain  Copyright. 

The  most  convenient  way  in  which  to  obtain  exact  instructions 
for  the  copyrighting  of  any  work  is  to  write  to  the  Register  of 
Copyrights,  Washington,  D.  C,  describing  the  character  of  the 
work  to  be  copyrighted,  and  asking  for  the  necessary  blanks  upon 
which  to  register  it. 

Under  the  old  law,  which  was  in  cflFect  prior  to  July  i,  1909, 
it  was  necessary  to  register  the  title  of  a  book  or  other  work  on 
which  copyright  was  desired  on  or  before  the  day  of  actual 
publication.    This  has  been  changed  by  the  present  law. 

32 


338  COPYRIGHTS 

In  publishing  a  work  under  copyright  protection  it  is  first  of 
all  necessary  to  print  -the  words 

Copyright  (year.) 
By  (Name  of  Copyright  Claimant.) 

upon  the  title  page,  or  the  page  immediately  following,  of  the 
article,  if  it  be  a  book,  periodical,  dramatic  or  musical  composition. 
The  copyright  notice  may  consist  of  the  word  "Copyright"  or  the 
abbreviation  "Copr."  accompanied  by  the  name  of  the  copyright 
proprietor,  if  the  work  be  a  photograph,  map,  design  for  a  work 
of  art,  reproduction  of  a  work  of  art,  drawing  of  a  scientific  or 
technical  character,  print  or  pictorial  illustration.  Indeed  any  of 
these  classes  of  works  may  even  be  copyrighted  by  printing  on 
their  face  the  letter  C  enclosed  within  a  circle  accompanied  by 
the  initials,  monogram,  mark,  or  symbol  of  the  copyright 
proprietor,  provided  that  on  some  accessible  portion  of  such 
copies,  or  of  the  margin,  back,  permanent  base,  or  pedestal,  or 
of  the  substance  on  which  such  copies  shall  be  mounted,  his  name 
shall  appear. 

After  a  work  has  been  published,  and  that  means  issued  to 
the  public,  or  publicly  sold,  it  should  be  registered  at  the  Copy- 
right Office,  and  this  should  be  done  upon  the  blanks  which  are 
furnished  by  the  Register  of  Copyrights.  As  the  application  for 
registration  must  specify  the  class  of  copyrightable  subjects  to 
which  the  work  in  question  belongs,  it  is  desirable  to  describe  it 
to  the  Register  of  Copyrights  sufficiently  for  him  to  send  to  the 
intending  applicant  the  proper  blank  for  this  purpose.  Full 
directions  for  making  this  registration  will  be  supplied  by  the 
Register  of  Copyrights,  so  that  any  person  can  clearly  understand 
how  to  do  it.  The  application  for  copyright  is  accompanied  by 
an  affidavit  of  American  manufacture,  giving  the  facts  as  to 
where  and  when  the  work  for  which  copyright  is  desired  was 
made.  The  application  should  be  returned  to  the  Register  of 
Copyrights  at  Washington  accompanied  by  a  fee  of  $i.oo,  and 
upon  due  entry  of  this  the  certificate  of  copyright  will  be  returned 
to  the  applicant. 

It  is  not  obligatory  immediately  to  register  copyrights,  but  it 
is  necessary  before  any  action  at  law  can  be  taken  by  the  owner 
of  the  copyright  for  infringement  of  his  rights  by  others,  and, 
therefore,  it  is  desirable  to  make  application  as  soon  as  convenient 
after  the  publication  of  the  work. 

After  the  copyright  has  been  secured  by  publication  of  the 
work  with  the  notice  of  copyright  as  above  stated,  there  shall  be 


COPYRIGHTS  339 

promptly  deposited  in  the  Copyright  Office,  or  placed  in  the  mail 
addressed  to  the  Register  of  Copyrights,  Washington,  D.  C,  two 
complete  copies  of  the  work  thus  published,  which  copies,  if  the 
work  be  a  book  or  periodical,  shall  have  been  manufactured  in  the 
United  States  of  America;  or  if  such  work  be  a  contribution  to  a 
periodical,  for  which  contribution  special  registration  is  required, 
only  one  copy  of  the  issue  or  issues  containing  such  contribution  is 
required.  No  action  or  proceeding  at  law  shall  be  maintained  for 
an  infringement  of  copyright  in  any  work  until  the  deposit  of 
copies  or  registration  of  such  work  shall  have  been  complied  with. 
It  is  not  necessary  to  prepay  the  postage  on  the  articles  which 
are  deposited  in  accordance  with  this  law,  as  the  postmaster  to 
whom  they  are  delivered  must  give,  if  requested,  a  receipt  for 
them  and  mail  them  to  their  destination  without  cost  to  the 
copyright  claimant. 

Registering  Copyright  of  Unpublished  Works. 

Copyright  may  also  be  obtained  for  the  work  of  an  author  of 
which  copies  are  not  reproduced  for  sale  by  sending  to  the 
Register  of  Copyrights,  with  a  blank  properly  filled  out,  one 
complete  copy  of  such  work,  if  it  be  a  lecture  or  similar  production 
or  a  dramatic  or  musical  composition ;  of  a  photographic  print  if 
the  work  be  a  photograph  ;  or  of  a  photograph  or  other  identifying 
reproduction  if  it  be  a  work  of  art  or  a  plastic  work  or  drawing. 
If  a  work  which  has  been  thus  copyrighted  before  publication 
shall  later  be  published,  deposit  of  copies  must  be  made  with  the 
Register  of  Copyrights  as  above  explained,  in  reference  to  works 
which  are  copyrighted  by  publication  with  a  printed  claim  of 
copyright  on  them. 


SALES. 

Elements  of  Valid  Sale — Parties — Conditions  and  Warranties — 
Performance — Delivery — Fraud  and  Mistake — By  Agents. 

THERE  are  innumerable  questions  of  importance  which  arise 
out  of  a  sale  of  personal  property  which  were  not  dis- 
cussed under  the  general  subject  of  contracts  heretofore 
appearing.  It  will  therefore  be  our  object  to  obtain  a  practical 
knowledge  of  the  principles  upon  which  the  law  of  sales  is  based, 
A  sale  has  been  judicially  defined  as  a  contract  to  pass  rights 
of  property  for  money  which  the  buyer  pays  or  promises  to  pay 
to  the  seller  for  the  goods  bought.  To  constitute  a  valid  sale 
there  must  be  a  concurrence  of  the  following  elements :  ( i )  Par- 
ties competent  to  contract;  (2)  mutual  consent;  (3)  a  thing, 
the  absolute  or  general  property  in  which  is  transferred  from 
the  seller  to  the  buyer,  and  (4)  a  price  in  money  paid  or  promised. 
It  is  important  before  analyzing  the  elements  of  a  sale  to  dis- 
tinguish this  species  of  contract  from  a  bailment,  lease,  and  an 
exchange  or  barter.  If  the  identical  property  delivered  is  to  be 
restored  again  to  the  original  owner,  the  relation  established  is 
one  of  bailment;  if  not,  a  sale  is  made.  However,  the  delivery 
of  personal  property  with  the  right  to  return  the  same  is  not 
always  a  bailment.  The  distinction  depends  upon  whether  title 
has  passed  upon  delivery  of  the  goods. 

To  illustrate,  if  John  Doe  delivered  goods  to  Richard  Roe 
with  the  understanding  that  if  satisfactory  he  is  to  retain  them, 
the  contract  is  one  of  bailment.  When  Richard  Roe  elects  to 
keep  the  goods  the  contract  becomes  a  sale.  The  contract  would 
be  construed  as  a  sale  if  Richard  Roe  kept  the  goods  beyond  a 
reasonable  time.  The  Supreme  Court  of  Pennsylvania  has 
decided  the  principle  that,  if  John  Doe  agrees  to  a  present  trans- 
fer of  the  absolute  title  in  personal  property  to  Richard  Roe,  with 
the  privilege  of  returning  them  if  not  satisfactory,  a  sale  would 
be  consummated.  Where  an  agreement,  while  it  is  designated 
an  option,  provides  for  the  absolute  transfer  of  shares  of  stock 
to  the  assignee,  who  is  during  the  continuance  of  the  so-called 
option  to  pay  interest  on  the  purchasing  value  of  the  stock,  and 
if  he  refuses  to  purchase,  is  to  assign  to  the  original  assignor,  the 
agreement,  if  carried  out,  is  a  sale  subject  to  rescission  by  the 

(340) 


GENERAL  LETTER   OF  ATTORNEY   IN   FACT 

When  Creditor  ia  not  R«praHited  by  Attorney  at  Law. 

Jn  tbe  DiiBftrict  Court  of  tbe  OniteO  ^tatcg 

For  the  District  of 


IN  THE  MATTER  OF    \ 

V  No.  In  Bankruptcy. 

Bankrupt.  ) 


To 


of 
in  the  County  of  and  State  of 

do  hereby  aiUhorize  you,  or  any  one  of  you,  to  attend  the  meeting  or 
meetings  of  creditors  of  the  bankrupt  aforesaid  at  a  Court  of  Bank- 
ruptcy, wherever  advertised  or  directed  to  be  holden,  on  the  day  and 
at  the  hour  appointed  and  notified  by  said  court  in  said  matter,  or 
at  such  other  place  and  time  as  may  be  appointed  by  the  court  for  hold- 
ing such  meeting  or  meetings,  or  at  which  such  meeting  or  meetings, 
or  any  adjournment  or  adjournments  thereof  may  be  held,  and  then 
and  there  from  time  to  time,  and  as  often  as  there  may  be  occasion, 
for  and  in  name  to  vote  for  or  against  any  proposal  or  rcso- 

luiion  that  may  be  then  submitted  under  the  ads  of  Congress  relating 
to  Bankruptcy;  and  in  the  choice  of  Trustee  or  Trustees  of  the  estate 
of  the  said  bankrupt,  and  for  to  assent  to  such  appointment 

of  Trustee;  and  with  like  powers  to  attend  and  vote  at  any  oOier  meet- 
ing or  meetings  of  creditors,  or  sitting  or  sittings  of  the  court,  which 
may  be  held  therein  for  any  of  the  purposes  aforesaid;  also  to  accept 
any  composition  proposed  by  said  bankrupt  in  satisfaction  of  his 
debts,  ami  to  receive  payment  of  dividends  and  of  money  due 
under  any  composition,  and  for  any  other  purpose  in  interest 

whatsoever,  with  full  power  of  substitution. 

Jn  dOlitneOd  W^ntai,  have  hereunto  signed 

name      ami  affixed  seal  the  day  of 

A.  D.  191 

^\a,nth.  braird  anb  OrKarrrZl  ) 

IN'  THK  I'llESENC'E  OF  j 


GENERAL  POWER  OF  ATTORNEY 

IKnotD  all  Q^en  tp  tftese  IPresents,  That 

have  constituted,  made  and  appointed,  and  by  these  Presents  do  con- 
stitute, make  and  appoint 

lawful  Attorney    for  and  in  name  and  stead,  and  to 

use, 

to  ask,  demand,  sue  for,  levy,  recover  and  receive,  all  such  sum  and 
sums  of  money,  debts,  rents,  goods,  wares,  dues,  accounts,  and  other 
demands  whatsoever,  which  are  or  shall  be  due,  owing,  payable,  and 
belonging  to  or  detained  from  in  any  manner  of  ways  or 

means  whatsoever, 

giving. and  granting  unto  said  Attorney    by  these  Presents 

full  and  entire  power  and  authority,  in  and  about  the  premises, 
to  have,  use,  and  take  all  lawful  ways  and  means,  in  name  for 

the  purposes  aforesaid;  and  upon  the  receipt  of  any  such  debts,  dues, 
or  sums  of  money   aforesaid,  acquittances,  or   other   sufficient   dis- 
charges, for  and  in  name     to   make,  seal  and  deliver, 
and  generally  all  and  every  other  act  and  acts,  thing  and  things, 
device  and  devices  in  the  law  whatsoever  needful  and  necessary  to  be 
done  in  and  about  the  premises,  for  and  in  name 
to  do,  execute  and  perform,  as  fully,  largely  and  amply,  to  all  intents 
and  purposes,  as            might  or  could  do,  if                   personally 
present,  or  as  if  the  matter  required  more  special  authority  than  is 
herein  given;  and  Attorneys,  one  or  more  under 
for  the  purpose  aforesaid,  to  make  and  constitute,  and  again  at 
pleasure  to  revoke;    ratifying,  allowing,  and  holding  for  firm  and 
effectual,  all  and  whatsoever          said  Attorney    or          substitute 
shall  laivfully  do  in  and  about  the  premises,  by  virtue  hereof. 

In  ^itnt00  iSSi^tttOt,  have   hereunto   set  hand 

and  seal    the  day  of  ,  in  the  year  of  our  Lord 

one  thousand  nine  hundred  and 

^iQntb.  ^taleb  anb  Srltorrrb     l 

IN  THE  PRESENCE  OF  | 


SALES  341 

vendee,  and  if  it  is  not  rescinded  he  is  liable  for  the  purchase 
price. 

The  difference  between  a  lease  and  a  sale  resides  in  the  fact 
that  the  former  is  only  a  temporary  transfer  of  possession,  while 
the  latter  is  an  absolute  transfer  of  title.  This  question  most 
frequently  arises  in  cases  where  pianos  and  sewing  machines 
are  delivered  under  contracts  providing  for  installment  payments 
in  the  nature  of  rental,  and,  further,  that  the  property  shall  vest 
in  the  user  upon  payment  of  the  last  installment.  Such  contracts 
are  sales,  and  not  leases,  regardless  of  what  the  parties  may  term 
them,  but  such  a  transaction  may  be  made  a  lease  if  the  contract 
contains  an  express  proviso  that  the  title  shall  not  pass  until 
the  last  payment  has  been  made.  If  such  class  of  goods  are  hired 
in  good  faith,  with  the  privilege  of  purchasing  at  a  stated  price 
in  addition  to  the  periodical  payments,  a  lease  is  made,  which 
upon  the  exercise  of  the  option  to  purchase  is  converted  into  a 
sale. 

If  goods  are  "consigned"  for  sale,  it  is  a  bailment  and  not 
a  sale  to  the  consignee;  the  goods  do  not  become  his  property 
or  liable  to  be  attached  by  his  creditors.  The  fact  that  the  goods 
consigned  were  invoiced  at  a  stated  price  does  not  constitute 
the  transaction  a  sale,  unless  the  terms  of  the  consignment  be  such 
as  to  make  the  consignee,  when  the  goods  are  sold,  the  purchaser 
and  principal  debtor  for  the  goods. 

In  Pennsylvania  a  chattel  mortgage  is  invalid,  but  in  New 
Jersey  and  many  other  States  a  mortgage  of  personal  property 
will  be  enforced.  The  distinction  between  a  sale  and  a  chattel 
mortgage  is  that  in  the  latter  there  is  but  a  conditional  transfer 
of  title  to  secure  a  debt,  while  in  the  former  the  transfer  and 
possession  are  absolute. 

A  consideration  paid  or  to  be  paid  is  essential  to  a  sale.  In 
the  case  of  a  gift,  a  transfer  of  personal  property  is  made  for 
what  is  known  technically  as  a  "good"  consideration,  such  as 
love,  affection  or  charity.  In  the  case  of  a  sale  a  money 
consideration  must  exist. 

The  question  has  frequently  arisen  whether  or  not  a  par- 
ticular transaction  is  a  sale  or  a  mere  barter  or  exchange  of 
goods.  In  a  well-known  Pennsylvania  case  B  had  in  his  posses- 
sion a  quantity  of  coin  which  he  believed  to  be  current  money 
of  a  foreign  country,  and  offered  it  to  A  for  the  purchase  of 
certain  goods.  A,  being  ignorant  of  its  value,  asked  time  for 
inquiry,  and  having  taken  several  days  for  that  purpose,  during 


342  SALES 

which  he  satisfied  himself  on  the  subject,  deHvered  to  B  a  quan- 
tity of  goods  for  which  he  received  the  coin.  After  keeping  the 
coin  three  years  A  discovered  that  it  was  no  good,  after  which 
he  brought  suit  against  B  for  the  price  of  the  goods  sold  and 
delivered.  The  Court  held  that  the  transaction  was  an  exchange 
and  not  a  sale  of  goods,  and  consequently  A  had  no  right  of 
recovery.  If  the  money  paid  was  counterfeit,  the  debt  for  goods 
bought  would  not  be  discharged,  but  when  the  seller  has  examined 
and  accepted  foreign  coin  at  the  time  of  the  bargain,  it  cannot  be 
denied  that  he  received  what  he  bargained  for.  The  current  coin 
of  the  country  may,  by  express  agreement  of  the  parties,  be 
taken  at  the  risk  of  the  seller.  If  the  consideration  for  the  trans- 
fer of  personal  property  is  a  price  in  money,  or  if  the  value  of 
the  goods  is  determined  by  a  price  fixed  in  money,  the  transaction 
is  a  sale.  If  no  price  is  fixed  a  barter  or  exchange  results.  For 
example,  if  the  consideration  for  delivering  twenty  pounds  of 
coflFee  at  thirty  cents  per  pound  is  fifty  pounds  of  sugar  at  ten 
cents  per  pound,  the  transaction  is  a  sale.  If,  however,  the  trans- 
action was  made  on  the  basis  of  delivering  twenty  pounds  of 
cofifee  for  fifty  pounds  of  sugar,  it  would  be  a  barter  or  exchange. 
It  will  be  observed  from  the  above  remarks  that  there  are 
many  transactions  which  involve  more  or  less  conveyances  of 
an  interest  in  personal  property,  but  they  are  not  sales  unless  they 
are  present  transfers  of  the  entire  title  for  a  legal  consideration. 

Parties  to  the  Contract  of  Sale. 

The  competency  of  a  party  to  enter  into  a  valid  contract  has 
been  considered  under  contracts,  and  it  will  therefore  suffice  in 
the  present  connection  to  state  that  infancy,  insanity  and  intoxi- 
cation will  render  a  party  incompetent  to  enter  into  a  valid  con- 
tract of  sale.  No  man  can  sell  goods  and  convey  a  valid  title  to 
them  unless  he  is  the  owner  or  lawfully  represents  the  owner. 
A  person,  therefore,  however  innocent,  who  buys  goods  from  one 
not  the  owner,  obtains  no  property  in  them  whatever,  and  even 
if  in  ignorance  of  the  fact  that  the  goods  were  lost  or  stolen,  he 
resells  them  to  a  third  person  in  good  faith,  he  remains  liable 
to  the  original  owner.  A  man  may  make  a  valid  agreement  to 
sell  goods  or  property  not  yet  his,  and  even  goods  not  yet  in 
existence. 

The  essential  parties  to  a  valid  contract  of  sale  are  the  vendor 
(seller)  and  the  vendee  (buyer).  There  must  be  a  clearly  defined 
ofTer  on  the  one  hand  and  an  acceptance  of  that  same  offer  on 


SALES  343 

the  other  hand.  In  other  words,  the  minds  of  the  parties  must 
meet;  there  must  be  mutuality  of  assent.  The  following  illus- 
tration will  emphasize  this  point :  A  wrote  to  B  making  an  offer 
to  sell  a  cargo  of  good  barley.  B  replied  accepting  such  offer, 
but  added  that  he  expected  to  receive  fine  barley  and  full  weight. 
A  wrote  back,  "You  say  you  expect  fine  barley.  Upon  reference 
to  my  letter  you  will  find  no  such  expression.  As  such  I  must 
decline  shipping  the  same."  Good  barley  and  fine  barley  are  terms 
well  known  in  the  trade,  and  fine  barley  is  the  heavier  of  the  two. 
There  was  no  valid  acceptance  of  the  original  offer  and  hence 
no  contract  of  sale.  Every  merchant  dealing  either  personally, 
by  agent  or  through  correspondence  should  exercise  care  in  see- 
ing that  the  terms  of  either  an  offer  or  acceptance  of  a  contract 
of  sale  are  not  ambiguous  or  unintelligible.  It  should  be  borne 
in  mind  that  where  the  acceptance  of  an  offer  is  made  by  either 
letter  or  telegram,  the  contract  is  complete  as  soon  as  the  letter 
or  telegram  of  acceptance  is  deposited  in  the  mails  or  telegraph 
office,  and  further  that  where  the  offer  is  communicated  by  letter 
and  the  acceptance  by  telegram,  the  acceptance  is  not  complete 
until  the  offeror  has  received  notice  of  such  acceptance. 

A  mistake  by  the  buyer  of  the  goods  in  supposing  that  the 
article  bought  by  him  will  answer  a  certain  purpose  for  which 
it  turns  out  to  be  unavailable,  is  not  a  mistake  that  would  afford 
grounds  for  pretending  that  he  did  not  assent  to  the  bargain. 

A  mistake  as  to  the  person  with  whom  a  contract  of  sale 
is  made  may  or  may  not  avoid  the  sale.  In  the  common  case  of 
a  trader  who  sells  for  cash  it  can  make  no  possible  difference  to 
him  whether  the  buyer  be  Harrigan  or  Jones,  and  a  mistake  of 
identity  would  not  avoid  the  contract.  In  some  cases  the  ques- 
tion of  identity  is  an  important  element  in  the  sale,  as,  for 
example,  if  the  sale  be  on  credit,  where  the  solvency  of  the  buyer 
is  the  chief  motive  which  influences  the  assent  of  the  vendor,  or 
when  the  purchaser  buys  from  one  whom  he  supposes  to  be  his 
debtor  and  against  whom  he  would  have  the  right  to  set  off  the 
price,  a  mistake  as  to  the  person  dealt  with  under  such  circum- 
stances would  prevent  the  valid  formation  of  a  contract  of  sale 
on  the  ground  of  absence  of  assent.  Assent  may  be  implied  by 
the  conduct  of  the  contracting  parties,  as  by  a  nod,  gesture,  or 
even  silence,  under  certain  circumstances. 

An  agreement  that  an  offer  shall  be  left  open  for  acceptance 
for  a  stipulated  time  is  known  as  an  option,  which  must  be  sup- 
ported by  a  valuable  consideration.  If  so,  the  offer  cannot  be 
withdrawn  or  retracted  during  the  time  for  >vhich  the  option 


344  SALES 

was  to  run.    If  the  offer  be  withdrawn  before  the  expiration  of 
the  option  damages  can  be  recovered  by  the  injured  party. 

The  Subject  of  Sale. 

Anything  recognized  as  property  may  be  sold,  and  as  a 
general  rule  such  property  must  be  in  actual  or  potential  existence 
and  must  be  definitely  described  and  separated  from  a  mass. 
By  potential  existence  of  property  is  meant  a  hope  or  expectation 
of  having  property  to  sell,  founded  on  a  present  right  of  posses- 
sion. For  example,  a  man  may  sell  the  crops  to  be  grown  in  his 
field  or  the  unborn  young  of  his  flock.  It  has  been  held  by 
respectable  authority  that  a  contract  to  sell  fish  which  might 
afterward  be  caught  did  not  vest  property  in  the  fish  when  caught 
in  the  purchaser.  If  a  vendor  sells  property  not  belonging  to 
him,  and  subsequently  acquires  a  title  to  it  before  the  repudiation 
of  the  contract  by  the  purchaser,  the  property  in  the  thing  sold 
vests  immediately  in  the  purchaser.  Likewise  in  a  contract  of 
"sale  or  return,"  where  the  vendor  had  no  title  at  the  time  of 
sale,  but  acquired  one  afterward,  before  the  time  limited  for  the 
return,  the  buyer  who  had  allowed  the  time  to  elapse  without 
returning  the  goods  sold  could  not  set  up  the  failure  of  consider- 
ation in  the  original  contract  as  a  defense  in  an  action  for  the 
price. 

A  definite  description  must  be  made  of  the  subject  matter 
of  the  sale  to  render  same  valid.  With  the  exceptions  herein- 
after mentioned,  the  subject  matter  of  a  sale  must  be  separated 
from  the  mass,  so  as  to  be  capable  of  identification.  An  agree- 
ment to  sell  five  hundred  bushels  of  corn,  to  be  measured  out  of 
a  bulk,  would  not  convey  title  until  the  required  number  of  bushels 
had  been  measured  out  and  separated  from  the  mass. 

Conditions  and  Warranties.    Sales  by  Samples. 

A  statement  or  promise  which  forms  the  basis  of  a  contract, 
and  the  untruth  or  non-performance  of  which  discharges  the 
same  is  termed  a  condition,  and  the  fulfillment  of  the  condition 
is  a  condition  precedent  to  the  attachment  of  any  obligation  on  the 
party  in  whose  favor  it  exists.  A  warranty,  on  the  other  hand,  is 
an  agreement  with  reference  to  the  subject  of  the  contract,  but 
collateral  to  its  main  purpose.  It  is  difficult  to  treat  these  sub- 
jects of  representations,  conditions  and  warranties  separately,  so 
closely  are  they  associated  together,  but  the  distinction  between 
them  is  of  the  most  vital  importance.    If  a  representation  is  made 


SALES  345 

when  a  contract  of  sale  is  entered  into  relative  to  the  subject 
matter  thereof,  and  such  statement  is  false,  no  valid  contract 
was  ever  in  existence.  A  party  to  a  sale  may  make  promises 
which  may  be  either  independent  or  conditional  upon  one  another. 
If  independent,  failure  by  one  of  the  parties  to  keep  his  promise 
does  not  discharge  the  contract.  But  when  the  promise  of  one 
party  is  conditional  upon  the  promise  of  the  other  the  law  holds 
that  the  performance  of  the  latter  is  either  a  condition  precedent 
or  concurrent  to  the  obligation  of  the  other  party  to  perform 
his  promise.  A  condition  in  a  contract  of  sale  is  held  to  form 
the  basis  of  the  contract,  the  non-performance  of  which  would 
discharge  all  obligations  arising  thereunder.  A  warranty  differs 
from  a  condition  in  a  contract  of  sale  in  that  fufillment  is  not 
a  condition  precedent  and  its  breach  does  not  discharge  the  con- 
tract. Upon  the  breach  of  a  warranty  the  injured  party  has  the 
right  to  recover  damages  which  he  has  sustained  as  a  result  of 
the  failure  of  the  other  party  to  perform  his  promise.  If  the 
parties  regarded  a  particular  statement  as  an  essential  term  of 
the  contract,  such  a  statement  is  a  condition,  its  performance  is 
a  condition  precedent  and  its  failure  effects  a  breach.  If  the 
parties  did  not  regard  a  certain  statement  as  fundamental,  it  is 
a  warranty,  the  breach  of  which  entitles  the  injured  party  to 
damages  only.  The  intentions  of  the  parties  in  this  regard  is 
arrived  at  by  strictly  interpreting  the  language  of  the  contract 
and  the  circumstances  under  which  it  was  made. 

When  goods  are  sold  by  description  there  is  an  implied 
condition  that  the  goods  shall  correspond  substantially  with  the 
description.  Suppose  a  man  should  offer  to  purchase  peas  of 
another,  but  receives  beans.  This  illustration  is  simple,  but  it 
illustrates  a  general  principle  to  the  effect  that  there  was  no 
warranty  that  the  vendor  should  sell  the  vendee  peas.  The  con- 
tract was  to  sell  peas,  and  if  any  other  commodity  is  sold  there 
is  a  non-performance  of  the  contract.  In  the  sale  of  a  described 
article,  a  tender  of  an  article  answering  the  description  is  a  con- 
dition, which,  if  not  performed,  entitles  the  buyer  to  reject  the 
article.  In  Pennsylvania  the  Courts  have  held  words  of  descrip- 
tion to  be  more  in  the  nature  of  warranties.  For  example,  where 
the  article  sold  was  described  in  the  bill  of  parcels  as  "blue  paint," 
it  was  held  that  this  amounted  to  a  warranty  that  the  article 
should  be  blue  paint  and  not  a  different  commodity. 

Having  pointed  out  the  meaning  of  the  term  "warranty," 
one  or  two  examples  will  furnish  an  illustration  thereof  as 
applied  to  a  contract  of  sale.    In  a  recent  Pennsylvania  case,  A 


346  SALES 

wrote  to  B,  "Our  leather  is  now  thoroughly  tanned;  will  re-ship 
on  Saturday,  hoping  the  same  will  exist  as  before,"  and  B  replied : 
"If  your  leather  is  thoroughly  tanned  now,  and  all  right  in  other 
respects,  we  will  take  it  as  before."  The  Court  held  in  a  suit 
for  the  price  of  the  leather  that  there  was  a  warranty  to  furnish 
thoroughly  tanned  leather.  Upon  an  executed  sale  of  a  chattel 
upon  an  express  warranty  of  quality,  the  buyer  has  no  right  to 
rescind  the  contract  for  breach  of  warranty  and  return  the  chattel, 
but  if  he  has  paid  the  price  he  may  sue  on  the  warranty  and 
recover  damages;  or  if  he  has  not  paid  the  price  he  may  set  off 
the  damages.  Where,  however,  the  warranty  was  fraudulent, 
the  buyer  may  rescind  and  return  within  a  reasonable  time,  and 
if  he  has  paid  the  purchase  money,  he  may  recover  it  back,  or  if 
he  has  not,  he  may  defend  against  an  action  for  the  same.  Where 
the  contract  is  executory,  as  where  a  particular  article  has  been 
ordered  without  having  been  seen,  and  it  is  warranted  to  be  of 
a  given  quality  or  description,  the  buyer  is  not  bound  to  keep 
it  or  to  pay  for  it  on  any  terms.  This  is  so  even  though  no  fraud 
was  intended  by  the  vendor,  but  in  such  case  the  buyer  must 
elect  within  a  reasonable  time  whether  to  accept  the  article  or 
not,  and  where  the  facts  are  disputed  the  question  of  reasonable 
time  is  one  for  a  Court  to  decide. 

In  another  well-known  case  a  rivet-maker  wrote  to  a  dealer 
in  iron:  "We  must  have  the  very  best  quality  for  this  purpose, 
and  we  should  want  it  right  along,  all  the  time  of  the  same 
quality,  if  we  found  it  satisfactory,"  and  the  iron  dealer  replied: 
"As  the  best  way  of  finding  out  whether  the  bar  will  answer 
your  purpose  is  to  try  it,  we  suggest  that  you  take  a  sample 
carload."  It  was  held  by  the  Court  that  the  statement  was  no 
'warranty  of  the  quality  of  the  iron.  But  upon  a  sale  of  slate, 
to  be  "free  from  scabs  and  gray  backs,"  if  such  slate  were  not 
furnished  the  purchaser  would  be  entitled  to  a  deduction  for 
his  damages  for  breach  of  warranty. 

In  a  sale  of  machinery  there  is  no  warranty  that  a  machine 
will  perform  certain  functions.  If  a  machine  is  constructed  in 
accordance  with  the  instructions  given,  it  is  no  defense  in  a  suit 
for  its  price  that  it  would  not  perform  the  work  for  which  it 
was  designed.  It  has  been  held  that  where  a  known  described 
and  definite  article  is  ordered  and  supplied,  there  is  no  warranty 
that  it  will  answer  the  particular  purpose  intended  by  the  buyer, 
and  this  would  be  the  case,  though  such  purpose  be  stated  by  the 
purchaser  at  the  time  of  the  sale.  Sometimes  a  machine  is 
warranted  to  give  satisfaction,  but  where,  for  example,  a  war- 


SALES  347 

ranty  is  made  that  a  reaping  machine  will  give  satisfaction  a 
retention  of  the  reaper  during  the  harvest,  with  no  notice  of 
defects,  entitles  the  vendor  to  recover  the  purchase  price.  If 
machinery  is  sold  with  a  warranty  to  give  satisfaction,  failure  of 
notice  to  the  seller  to  put  the  same  in  satisfactory  condition  is  an 
election  to  retain,  and  the  purchaser  becomes  liable  for  the 
contract  price. 

If  a  horse  is  warranted  to  be  sound  and  kind,  and  is  returned 
after  one  day's  use  by  the  purchaser  upon  the  grounds  that  the 
horse  is  not  kind,  and  it  shortly  afterward  dies  from  founder,  if 
the  purchaser  used  the  horse  properly  he  can  recover  for  a 
breach  of  warranty. 

When  merchandise  of  any  description  is  delivered  to  the 
buyer  on  trial  or  on  approval,  title  to  the  property  passes  to  the 
purchaser  (i)  when  he  signifies  that  same  meets  with  his 
approval,  or  (2)  on  the  expiration  of  the  time  limited  for  trial, 
or  (3)  if  no  time  is  limited,  on  the  expiration  of  a  reasonable 
time.  However,  if  goods  are  delivered  to  the  buyer  with  the 
understanding  that  the  property  is  to  pass  to  him  immediately, 
but  that  he  may  thereafter  return  the  same  if  he  so  desires,  the 
property  passes  to  the  buyer,  and  in  case  of  a  return  of  the  goods, 
revests  in  the  seller. 

Performance  of  Contract  of  Sale. 

Certain  rights  and  obligations  are  created  by  every  contract 
of  sale,  the  non-performance  of  which  effects  a  breach  and  fastens 
liabilities  on  the  guilty  party.  The  vendor  must,  to  discharge  his 
obligations  under  a  contract  of  sale,  make  delivery  of  the  goods 
sold,  the  goods  to  comply  with  all  warranties.  It  should  be  borne 
in  mind  that  a  warranty  is  a  contract,  and  requires  a  valuable 
consideration  to  support  it,  and  if  the  contract  of  warranty  is 
made  at  the  same  time  or  at  a  reasonable  time  before  the  contract 
of  sale  is  entered  into,  the  consideration  for  the  latter  will 
always  support  the  former.  If,  on  the  other  hand,  a  warranty 
is  made  after  the  contract  of  sale  is  closed,  a  separate  consider- 
ation is  required  to  support  such  a  warranty.  In  connection  with 
warranties,  mere  expressions  of  opinion  or  general  commenda- 
tion of  the  goods  do  not  constitute  binding  warranties.  Some 
positive  statements  of  facts  must  be  made,  and  even  if  such  a 
statement  was  made  it  would  not  cover  patent  or  obvious  defects. 
The  law  of  sales  is  based  upon  the  maxim  caveat  emptor, 
which  literally  translated  means  "let  the  buyer  beware."    When 


348  SALES 

goods  are  sold  by  sample  there  is  an  implied  warranty  that  the 
goods  delivered  will  be  of  the  same  species  and  kind  as  the 
sample.  There  is,  however,  no  implied  warranty  against  latent 
defects  in  the  goods  which  are  present  in  both  sample  and  bulk. 
In  all  cases  where  provisions  are  sold  by  retailers  direct  to  con- 
sumers, or  where  they  are  sold  by  wholesalers  to  retailers,  there 
is  an  implied  warranty  that  the  goods  sold  are  fit  for  use  as  food. 
In  Pennsylvania  the  act  of  May  4,  1889,  establishes  the  law  in  this 
regard. 

Delivery. 

Upon  a  cash  sale  the  buyer  is  entitled  to  an  immediate  de- 
livery of  the  goods  upon  payment  or  tender  of  cash.  The  buyer 
is  also  entitled  to  immediate  delivery  when  the  sale  is  on  credit 
and  no  definite  time  is  fixed  for  delivery.  It  may  be  stated  as  a 
general  proposition  of  law  that  the  vendor  is  not  obliged  to 
deliver  goods  sold  to  the  purchaser's  residence  or  place  of  busi- 
ness. The  vendor's  contract  is  performed  when  he  places  the 
goods  at  the  disposal  of  the  buyer  so  that  they  may  be  removed 
by  him.  Special  agreements  as  to  delivery  are  usually  made. 
Consequently  when  the  contract  provides  for  place  of  delivery, 
the  transfer  must  occur  at  the  place  designated.  In  the  absence 
of  a  designated  place  of  delivery,  the  goods  must  be  held  ready 
for  delivery  at  the  place  where  they  were  at  the  time  the  sale 
took  place.  As  we  learned  in  our  study  of  the  subject  of  Com- 
mon Carriers,  delivery  to  a  common  carrier  is  delivery  to  the 
purchaser,  but  title  to  the  goods  shipped  may  be  retained  after 
delivery  to  the  common  carrier  if  a  bill  of  lading  is  written  in 
the  name  of  the  shipper  providing  that  the  goods  are  delivered 
subject  to  the  order  of  the  shipper.  Before  delivery  of  possession 
is  eflFected  the  bill  of  lading  must  be  indorsed  and  transferred 
by  the  shipper  or  the  common  carrier  who  is  made  the  shipper's 
authorized  agent. 

In  the  performance  of  any  contract  of  sale,  delivery  must 
be  made  within  the  time  specified ;  if  damages  are  occasioned  by 
delay,  the  purchaser  has  a  right  to  recover  same.  In  the  absence 
of  any  condition  as  to  time  of  delivery  the  seller  will  be  given 
reasonable  time.  It  is  further  the  duty  of  the  vendor  to  deliver 
the  exact  quantity  and  a  breach  of  contract  occurs  if  either  more 
or  less  are  delivered  than  ordered.  Many  contracts  of  sale  are 
entered  into  every  day  in  a  careless  manner,  and  contain  such 
general  terms  as  to  quantity  as  "about"  and  "more  or  less."    In 


SALES  349 

such  case  the  vendor  is  not  bound  to  deliver  the  exact  number 
mentioned,  but  is  deemed  to  have  performed  his  contract  upon 
delivery  of  approximately  the  number  set  forth  in  the  contract. 
If  it  is  agreed  between  the  parties  that  the  goods  be  deliverd 
by  installments,  and  the  contract  is  entire,  failure  to  deliver  one 
installment  or  to  accept  same  will  give  the  injured  party  the  right 
to  rescind  the  contract  and  sue  for  damages. 

Should  the  vendor  retain  possession  of  goods  after  a  con- 
tract of  sale  is  concluded,  fraud  would  be  presumed.  Good  faith 
in  the  transaction  must  be  shown  to  overcome  this  presumption. 
In  case  goods  are  sold  to  two  or  more  different  persons  by  con- 
veyances equally  valid,  the  law  will  give  the  person  lawful 
possession  who  obtains  possession  first. 

Upon  receiving  goods,  the  buyer  is  given  by  law  a  reasona- 
ble time  to  examine  the  same  to  ascertain  whether  they  are  the 
same  quantity  and  quality  as  he  ordered.  Oftentimes  an  accept- 
ance is  made  conditionally,  i.  e.,  acceptance  may  be  conditional 
upon  further  performance  of  the  contract  by  the  vendor,  as,  for 
example,  to  remedy  certain  defects.  The  acceptance  is  made 
absolute  when  the  defects  are  remedied  by  the  seller. 

When  the  buyer  has  accepted  a  delivery  of  goods,  he  there- 
upon becomes  liable  for  the  cost,  and  if  no  price  was  agreed 
upon  he  is  liable  for  a  fair  or  reasonable  price,  in  law  known  as 
a  quantum  meruit.  The  seller  of  goods  has  the  right  to  insist 
that  the  price  be  paid  in  money.  It  is  altogether  optional  whether 
he  accept  a  promissory  note  or  check.  Payment  by  note  or  check 
is  conditional,  and  only  becomes  absolute  when  payment  on  the 
instrument  has  been  made.  If  a  man  accepts  a  check  and  neg- 
lects to  present  the  same  to  bank,  and  the  bank  should  fail,  the 
payment  would  be  absolute  and  the  loss  would  fall  on  the  holder 
of  the  check  (the  vendor).  The  purchaser  is  liable  for  any  loss 
occurring  by  transmitting  the  payment  through  the  mails  or 
other  adopted  agency. 

Tender  of  Payment. 

A  technical  tender  of  payment,  such  as  will  be  recognized 
in  law,  is  quite  different  from  the  common  understanding  of  what 
constitutes  a  valid  tender. 

A  tender  is  an  offer  to  perform  an  obligation  which  a  party 
is  legally  bound  to  perform  and  comprises  six  essential  elements. 
A  tender,  in  the  first  place,  must  be  made  in  the  currency  which 
is  legal  tender  for  the  payment  of  debts.    The  precise  amount 


350  SALES 

due  must  be  tendered,  and  a  tender  of  a  greater  or  less  sum 
will  not  be  valid.  Furthermore,  the  money  must  be  produced 
and  offered  to  the  creditor  and  must  be  altogether  unconditional. 
The  tender  must  be  continuous.  The  effect  of  making  a  legal 
tender  of  the  price  of  goods  to  the  vendor  is  to  avoid  the  accumu- 
lation of  interest  and  to  protect  the  buyer  from  any  costs  in  case 
suit  is  brought  for  the  debt.  When  there  has  been  a  delivery 
of  the  goods  by  the  seller  and  an  acceptance  thereof  by  the 
buyer,  accompanied  or  followed  by  a  payment  or  tender  of 
payment  of  price,  the  contract  of  sales  may  be  said  to  have  been 
performed. 

Fraud  and  Mistake. 

It  is  unnecessary  to  analyze  the  elements  of  fraud  and  mis- 
take which  was  covered  under  the  head  of  "Reality  of  Consent" 
in  our  study  of  contracts.  In  connection  with  sales,  it  will  suffice 
to  say  that  the  effect  of  mistake  is  to  render  the  contract  void. 
A  person  who  has  entered  into  a  contract  of  sale,  void  on  the 
ground  of  mistake,  may,  if  it  is  still  executory,  repudiate  it,  and 
successfully  defend  an  action  upon  it.  If  he  has  paid  money  or 
delivered  goods  under  the  contract  he  may,  upon  returning  what 
he  has  received  under  it,  recover  the  money  or  the  goods.  Upon 
failure  of  the  seller  to  perform  his  part  of  the  contract,  the  buyer 
may  put  an  end  to  it,  and  recover  in  an  action  for  money  had 
and  received  any  part  of  the  price  which  he  may  have  advanced. 

If  a  party  to  a  contract  of  sale  has  been  induced  to  enter 
into  it  by  fraud  of  the  other  party,  the  contract  is  voidable  at 
his  option.  Fraud  in  this  connection  is  used  in  the  sense  of 
deceit  and  comprises  three  essentials.  There  must  be  a  false 
representation  or  concealment  of  a  material  fact.  There  must 
be  an  intention  to  deceive  or  a  negligent  statement  of  a  falsehood. 
The  misrepresentation  or  concealment  must  have  induced  the  de- 
ceived party  to  act.  A  man  is  not  bound  by  a  contract  of  sale 
to  which  his  consent  has  been  obtained  by  fraud,  because,  but  for 
the  fraud,  he  would  not  have  given  his  consent.  As  ignorance 
of  the  law  is  never  a  defense,  a  misrepresentation  of  the  law  does 
not  constitute  fraud.  There  must  be  a  misrepresentation  of  a 
material  fact  to  render  a  contract  fraudulent. 

A  fraudulent  contract  of  sale  is  voidable,  i.  e.,  the  injured 
party  may  rescind  it  or  he  may  affirm  it.  If  he  affirm  the  con- 
tract he  may  recover  damages  for  the  fraud  in  an  action  of 
deceit,  or  if  sued  for  the  price  he  may  set  up  the  fraud  in  reduc- 


SALES  351 

tion  thereof.  Such  a  contract  must  be  affirmed  or  rescinded  in 
whole  and  an  election  once  made  is  final.  If  the  party  defrauded 
rescinds  the  contract,  he  may  set  up  the  rescission  in  defence  of 
an  action  on  the  contract,  or  if  such  party  be  the  buyer  and  has 
paid  the  price,  he  may  maintain  an  action  to  recover  the  amount. 
If  the  injured  party  be  the  seller  and  has  delivered  the  goods, 
he  may  maintain  an  action  of  replevin  and  recover  the  goods 
delivered. 

A  fraudulent  contract  being  voidable  and  not  void  it  follows 
that  when  innocent  third  persons  have  for  value  acquired  rights 
under  the  sale,  their  rights  cannot  be  interfered  with.  The  rule 
is  also  stated  to  be  an  application  of  the  principle  of  convenience 
that  when  one  of  two  innocent  parties  must  suffer  from  the  fraud 
of  a  third,  the  loss  should  fall  on  the  one  who  enabled  the  third 
party  to  commit  the  fraud.  For  example,  when  a  sale  is  pro- 
cured by  fraud,  the  property  in  the  goods  is  transferred  by  the 
contract,  subject  to  the  seller's  right  of  rescission,  and  one  who 
purchases  in  good  faith  from  the  fraudulent  buyer  before  the 
sale  is  rescinded  acquires  a  good  title.  But  where  a  person 
obtains  goods  by  fraudulently  impersonating  a  third  person,  or 
by  pretending  to  be  the  agent  for  the  third  person  to  whom  the 
owner  supposes  he  is  selling  the  goods,  the  person  so  obtaining 
the  goods  acquires  no  title  and  a  bona  fide  purchaser  from  him 
stands  in  no  better  position. 

A  sale  made  with  the  intent  on  the  part  of  the  seller  and 
buyer  to  delay,  hinder  or  defraud  creditors  of  the  seller  is  fraudu- 
lent and  such  creditors  may  avoid  the  sale,  which,  although 
fraudulent  as  to  the  creditor,  is  valid  between  the  contracting 
parties. 

Sales  by  Agents. 

An  agent  may  enter  into  a  valid  contract  of  sale  which  shall 
be  binding  upon  his  principal  if  he  acts  within  the  scope  of  the 
express  or  implied  powers  with  which  he  is  clothed.  A  broker 
unless  specially  restricted  has  unlimited  power  to  buy  and  sell. 
He  may  sell  by  sample,  but  not  on  credit,  without  authority.  A 
factor  may  receive  payment,  sell  on  credit,  appoint  sub-agents 
and  warrant  the  goods  sold.  A  factor  may  sell  in  his  own  name, 
but  a  broker  cannot.  In  the  case  of  a  pledgee  an  absolute  sale 
cannot  be  made  until  there  has  been  a  default  by  the  pledger; 
the  sale  must  be  made  at  public  auction,  due  notice  thereof  must 
be  given,  and,  as  is  the  case  with  other  agents,  a  pledger  cannot 
purchase  at  his  own  sale  the  goods  sold. 


DOMESTIC  RELATIONS. 

Husband  and   Wife — Parent  and  Child — Guardian  and   Ward 
— Master  and  Servant. 

THE  law  applicable  to  domestic  relations,  regulating  the 
rights  and  duties  of  the  household  or  family,  consti- 
tutes one  of  the  most  interesting  and  important  sub- 
jects included  in  the  entire  realm  of  jurisprudence,  and  will 
be  considered  under  the  following  five  divisions — Husband  and 
wife,  parent  and  child,  guardian  and  ward,  and  master  and 
servant. 

In  primitive  times  the  wife  was  regarded  as  practically  a 
slave,  the  captive  or  purchase  of  her  husband,  and  mutual  rights 
and  duties  were  unknown.  The  rights  were  all  with  the  strong 
(the  man)  and  the  duties  belonged  to  the  weak  (the  woman). 
The  husband's  control  over  the  wife's  person,  as  well  as  over  the 
property  she  possessed,  was  regarded  as  law  until  comparatively 
recent  times.  According  to  the  early  Roman  law,  the  husband 
could  chastise,  sell,  or  even  kill  his  wife ;  he  became  the  possessor 
of  the  wife's  property  and  was  entitled  to  her  labor  and  earnings. 
The  wife  had  the  right  to  compel  support  and  was  entitled  to  a 
share  of  her  husband's  property  upon  his  death. 

Under  the  doctrine  of  the  so-called  "free  marriage,"  which 
was  developed  at  a  later  period,  the  husband  and  wife  were 
regarded  as  partners,  the  husband  having  the  right  to  choose  the 
home,  to  regulate  household  expenses  and  the  right  of  custody 
and  education  of  the  children.  Under  the  English  Common  Law, 
husband  and  wife  are  regarded  as  one  person,  but  in  equity  the 
wife's  separate  existence  was  early  recognized  and  she  was  given 
the  right  to  enjoy,  control  and  dispose  of  her  separate  estate.  The 
rights  of  married  women  at  the  present  time  are  regulated  by 
statute  and  in  Pennsylvania  a  married  woman  has  the  same  rights 
as  a  single  woman  with  the  exception  that  she  cannot  become 
surety,  guarantor  or  accommodation  indorser  for  another.  So 
strong  are  the  moral  obligations  which  attend  marriage,  and  the 
training  of  offspring,  so  intimately  blended  with  the  welfare  and 
happiness  of  mankind  are  the  ties  of  wife  and  child,  that  scarcely 
anyone  grows  up  without  some  knowledge  of  the  general 
principles  of  law  applicable  to  these  topics. 

(352) 


WILL 

15t  it  EemcmbcteD,  Thai  i, 

being  of  sound  and  disposing  mind,  memory  and  understanding, 
and  considering  the  uncertainty  of  life,  do  therefore  make,  publish 
and  declare  this  to  be  my  la.st  Will  and  Testament,  in  manner  and 
form  following,  thai  is  to  say: 

Jttnt!  /  order  all  my  just  debts  and  funeral  expenses  to  be  paid 
by   my   Execut  hereinafter   named,   as   soon  as   conveniently 

may  be  after  my  decease. 

SECOND. — /  give,  devise  and  bequeath  urilo 

aU  my  Estate,  real,  personal  or  mixed,  of  whatever  nature  or  kind, 
or  wheresoever  situate  at  the  time  of  my  decease, 

AND  LASTLY. — /  do  make,  constitute  and  appoint 

to  be  the  Execut  •  of  this  my  last  WiU  and 

Testa  nerd,  hereby  revoking  all  former  Wills  and  Testaments  by  meat 
any  time  heretofore  made,  and  declaring  this  to  be  my  last  Will  and 
Testament. 

Jn  dZSftnrdd  SObf tf  of ,  /  have  hereunto  subscribed  my  name, 
and  affixed  my  seal,  the  day  of  in  the  year 

of  our  Lord  one  thousand  nine  hundred  and 

Signed,  sealed,  published  and  delivered  by  the 
testat  above  named,  as  and  for 

last  Will  and  Testament,  in  the  presence  of  us, 
who  have  hereunto,  at  request,  subscribed 

our  names  in  presence,  and  in  the  pres- 

ence of  each  other,  as  uritnesses  hereto. 

PETITION  FOR   APPOINTMENT  OF  GUARDIAN 

3n  tbe  £Dtpt)an0'  Court  of  Countp* 

To  the  Honorable  Oie  Judges  of  said  Court: 

tlTfie  Petition  of 

minor  tlte  age  of  fourteen  years,  resident  within  the 

said  County, 

respectfully  represents: 

That  bom 

That  the  adUi  of 

That  no  Ouardian  to  take  care  of  person 

and  estate: 

therefore  pray   the  Court  to 
Ouardian  for  the  purpose  aforesaid. 

And  will,  dkc, 


DOMESTIC  RELATIONS  353 

Earliest  of  Institutions. 

The  family  was  the  earliest  of  all  social  institutions,  preced- 
ing that  of  government  itself.  The  propagation  of  offspring 
afforded  the  only  means  whereky  society  could  hope  to  grow  into 
a  permanent  and  compact  system.  Families  at  first  lived  under 
the  paternal  government  of  the  person  who  was  their  patriarch 
or  chief.  But  the  increase  in  families  caused  division,  and  when 
a  common  enemy  threatened  it  became  necessary  to  unite  for 
mutual  protection.  Thus  governments  were  developed,  which 
merely  represent  a  collection  of  families. 

Marriage  may  be  defined  "as  a  relation  divinely  instituted  for 
the  mutual  comfort,  well-being  and  happiness  of  both  man  and 
woman,  for  the  proper  nurture  and  maintenance  of  offspring,  and 
for  the  education  in  turn  of  the  whole  human  race."  Marriage 
necessarily  affords  a  discipline  to  both  sexes.  Woman's  condition 
becomes  one  of  comparative  subjection ;  man  is  tamed  by  her 
gentleness  and  the  helplessness  of  tender  offspring,  and  for  their 
sake  he  puts  a  check  upon  his  baser  appetites  and  concentrates 
his  affection  upon  the  home  he  has  founded,  of  which  he  naturally 
becomes  the  head.  It  is  the  law,  growing  out  of  the  relationship 
incident  to  marriage,  which  we  will  proceed  to  briefly  investig^ate. 

Marriage  supposes  a  home  and  mutual  cohabitation.  It  is 
for  the  wife  to  love,  honor  and  obey ;  it  is  for  the  husband  to  love, 
cherish  and  protect.  The  husband,  as  head  of  the  family,  has  the 
right  to  fix  the  family  name.  By  custom  the  wife  takes  the  sur- 
name of  the  husband,  but  inasmuch  as  the  husband  may  lawfully 
change  his  name,  there  is  no  legal  objection  to  his  adopting  his 
wife's  family  name  should  he  so  desire.  The  Court  has  power 
to  change  the  name  of  a  wife  against  the  wishes  of  her  husband, 
where  her  true  interest  will  thereby  be  promoted ;  but  a  Court  will 
reject  an  application  for  such  a  change  where  the  wife  and  hus- 
band are  separated,  and  to  grant  such  change  would  seem  to  close 
the  door  to  reconciliation. 

Duty  of  Cohabitation. 

The  most  important  duty  which  attaches  upon  both  husband 
and  wife  is  that  of  cohabitation.  Cohabitation  does  not  imply  the 
daily  and  nightly  residence  under  the  same  roor  of  a  husband 
and  wife ;  circumstances  of  life,  such  as  business  duties,  domestic 
service,  etc.,  may  separate  husband  and  wife,  and  yet  there  may 
be  an  existing  state  of  cohabitation.  The  husband  is  given  the 
right  to  choose  the  home  or  domicile;  he  may  locate  his  home 

28 


354  DOMESTIC  RELATIONS 

wherever  he  pleases,  and,  as  a  general  rule  of  law,  the  wife  must 
follow  her  husband  throughout  the  world.  A  husband  cannot  law- 
fully require  his  wife  to  reside  in  a  place  which  would  endanger 
her  health  or  where  she  would  be  subjected  to  unreasonable  hard- 
ship or  distress.  If  the  wife  be  a  minor,  her  husband's  right  to 
her  person  is  paramount  to  that  of  her  parents  or  guardian.  The 
right  of  custody  enables  the  husband  to  recover  his  wife  from  any 
person  who  would  draw  her  from  him.  Parents  and  near  rela- 
tions stand  on  a  different  footing  than  strangers  in  this  regard, 
but  when  one  executes  or  attempts  to  execute  a  malicious  intent 
to  alienate  the  affection  of  a  wife  from  a  husband  the  latter 
may  sue  for  damages  for  alienation  of  affections. 

A  husband  has  no  right  under  the  law  of  Pennsylvania  to 
inflict  corporal  punishment  on  his  wife.  It  has  been  held  that  a 
husband  cannot,  for  the  purpose  of  compelling  his  wife  to  live 
with  him,  imprison  her  in  his  own  home.  If  a  husband  is  guilty 
of  violence  or  cruelty  the  wife  may  have  him  arrested,  upon  which 
he  will  be  compelled  to  furnish  bail  to  keep  the  peace.  Blackstone 
says  that  in  case  of  any  gross  misbehavior  the  husband  can  re- 
strain his  wife  of  her  liberty,  but  the  better  authority  seems  to  be 
that  laid  down  by  Chancellor  Kent,  to  the  effect  that  the  husband, 
in  case  of  misconduct  by  his  wife,  may  resort  to  "gentle  restraint." 
Such  restraint  would  be  justified  if  the  wife  should  attempt  to 
wantonly  destroy  her  husband's  property,  or  where  the  wife  has 
eloped  with  a  libertine,  etc. 

It  is  the  husband's  privilege  to  supervise  or  regulate  the 
household,  and  the  law  regards  the  wife  as^his  representative  or 
executive  officer  properly  intrusted  with  domestic  details.  The 
husband  may  determine  the  number  and  character  of  visitors  to 
his  house,  the  style  of  entertainment  and  the  arrangement  of  the 
rooms,  etc.,  and  the  wife  is  legally  bound  to  conform  to  her  hus- 
band's tastes  and  habits,  even  to  his  eccentricities.  Whims  and 
caprices  of  the  husband  need  not  be  obeyed  if  they  endanger  the 
wife's  health. 

Right  of  Support. 

Another  essential  duty  which  the  law  casts  upon  a  husband 
is  that  of  support  and  maintenance.  This  he  is  bound  to  do  even 
though  the  wife  has  a  separate  estate  of  her  own.  This  duty 
applies  as  much  to  a  husband  who  is  a  minor  as  to  an  adult.  But 
no  husband  is  required  to  support  his  wife  if  she,  without  reason- 
able cause,  refuses  to  live  with  him.    Where  a  man  lives  with  a 


DOMESTIC  RELATIONS  355 

woman  and  holds  her  forth  to  the  public  as  his  wife,  he  cannot 
deny  it  when  charged  with  habiHties  as  her  husband. 

A  husband  is  liable  for  groceries  purchased  by  his  wife  and 
necessary  for  the  use  of  his  family,  in  the  absence  of  notice  not 
to  sell  to  her  on  his  credit,  and  even  after  such  notice  if  he  has 
failed  to  supply  her  with  means  to  purchase  same.  A  husband 
is  liable  for  his  wife's  contracts  for  necessaries.  It  has  been 
held  that  where  a  wife  in  the  presence  of  her  husband  enters 
into  a  contract  for  board,  without  any  express  promise  to  charge 
herself  or  her  separate  estate,  the  board  contracted  for  being  such 
as  her  husband  is  bound  to  furnish,  he,  after  the  board  is  fur- 
nished, is  alone  liable  for  the  bill,  although  the  other  party  may 
have  intended  to  charge  it  to  her.  Where  a  wife  obtains  neces- 
saries for  the  family  of  herself  and  husband  the  presumption  is 
that  she  does  so  as  his  agent,  and  if  she  sends  for  a  physician  to 
attend  herself  or  children  she  will  not  be  held  liable  to  pay  for  his 
services  out  of  her  own  separate  estate,  unless  she  specially 
agrees  to  do  so. 

A  husband  is  legally  liable  for  the  funeral  expenses  of  his 
wife,  even  where  in  her  will  she  directs  same  to  be  paid  out  of  her 
separate  estate.  But  if  the  husband  is  insolvent  the  estate  of  his 
deceased  wife  is  liable  for  her  medical  and  funeral  expenses.  The 
Supreme  Court  of  Pennsylvania  has  held  that  where  a  husband 
without  justification  deserts  his  wife  and  children,  he  is  liable  for 
necessaries  ordered  by  and  delivered  to  the  wife  for  the  use  of 
herself  and  children,  and  this  would  be  the  case  even  though  the 
wife  had  repudiated  the  husband's  offer  of  allowance.  It  is  un- 
necessary to  further  elaborate  on  the  duty  imposed  by  law  on 
the  husband.  Suffice  it  to  say  that  the  support  which  the  law  re- 
quires a  husband  to  giye  his  wife  and  children  is  such  as  is  reason- 
able, considering  his  situation  and  condition  in  life. 

It  should  be  borne  in  mind,  however,  that  the  duty  of  the 
husband  to  support  his  wife  and  family  does  not  extend  to  the 
support  of  his  wife's  children  by  a  former  marriage.  Strictly 
speaking,  stepchildren  form  no  part  of  his  family.  An  ante- 
nuptial agreement  to  support  stepchildren  is  not  binding. 

Services  of  a  Wife. 

As  a  corollary  to  the  husband's  duty  to  support  his  wife, 
the  marital  relation  imposes  the  duty  on  the  wife  to  render  serv- 
ices to  her  husband,  the  extent  of  which  it  will  be  well  to 
consider. 


356  DOMESTIC  RELATIONS 

It  is  a  legal  presumption  that  a  wife's  services  and  the  com- 
fort of  her  society  are  fully  equivalent  to  any  obligations  which 
the  law  imposes  on  her  husband,  because  of  the  marital  relation. 
Services  performed  by  a  wife  for  another  for  compensation  are 
presumed  to  be  done  on  the  husband's  behalf.  Upon  this  theory 
the  law  allows  the  husband  a  right  of  action  for  damages  result- 
ing from  loss  of  his  wife's  services  occasioned  by  accident  due 
to  the  negligence  of  a  third  party.  Although,  as  a  general  rule,  a 
husband  is  entitled  to  receive  all  money  paid  for  his  wife's  serv- 
ices, yet  when  those  services  are  gratuitously  rendered  he  has 
no  right  to  compensation.  If  she  is  afterward  rewarded  by  a 
voluntary  gift,  her  husband  can  have  no  more  claim  to  it  than  a 
stranger. 

In  Pennsylvania,  since  the  act  of  June  3,  1887,  the  wages  of 
a  married  woman  earned  by  her  labor  belong  to  her,  and  where 
a  married  woman  attends  upon  a  boarder,  cleans  his  room  and 
administers  medicine  to  him  when  he  is  sick,  she  is  entitled  to 
recover  compensation  for  her  services  in  her  own  name,  although 
the  contract  for  boarding  was  made  with  her  husband.  Such 
services  are  not  those  of  an  ordinary  house  servant,  and,  there- 
fore, the  fact  that  she  did  not  present  a  claim  for  her  services 
for  a  considerable  time  after  they  were  performed  will  not  pre- 
vent a  recovery.  A  suit  for  the  value  of  the  services  of  a  mar- 
ried woman  in  the  temporary  employment  of  nursing  is  prop- 
erly brought  in  the  name  of  the  husband  alone;  where,  however, 
the  employment  is  of  a  permanent  character  so  as  to  become  a 
trade  or  business  she  is  entitled  under  the  act  of  June  3,  1887,  to 
recover  in  her  own  name.  When  a  married  woman  leases  and 
runs  a  boarding  house,  its  profits  belong  to  herself  and  not  to 
her  husband,  and  this  is  so  even  though  he  be  permitted  to  live 
and  be  maintained  upon  the  property  and  voluntarily  bestows 
labor  in  running  it. 

It  has  been  decided  in  Pennsylvania  that  the  earnings  and 
services  of  a  wife  in  her  husband's  business  do  not  belong  to  him 
and  property  bought  with  such  earnings  are  not  subject  to  levy 
and  sale  by  a  husband's  creditors. 

Respective  Property  Interests. 

At  common  law  the  personal  property  belonging  to  a  woman 
at  the  time  of  her  marriage  or  acquired  afterward  by  gift,  be- 
quest or  purchase,  vested  in  the  husband,  but  the  wife  acquired 
no  rights  whatever  in  the  personal  property  of  the  husband.    This 


DOMESTIC  RELATIONS  357 

rule,  however,  has  been  considerably  relaxed  by  statute.  In 
Pennsylvania,  by  the  terms  of  the  act  of  June  8,  1893,  a  married 
woman  is  given  the  same  rights  and  powers  as  an  unmarried 
person  to  "acquire,  own,  possess,  control,  use,  lease,  sell  or  other- 
wise dispose  of  any  property  of  any  kind,  real,  personal  or  mixed, 
and  may  exercise  the  said  right  and  power  in  the  same  manner 
and  to  the  same  extent  as  an  unmarried  person."  But  a  married 
woman  cannot  mortgage  or  convey  her  real  property  unless  her 
husband  join  in  such  mortgage  or  conveyance. 

Where  property  is  claimed  by  a  married  woman  as  against 
the  creditors  of  her  husband,  she  must  show  by  evidence  which 
does  not  admit  of  reasonable  doubt  either  that  she  owned  it  at  the 
time  of  her  marriage  or  else  acquired  it  afterward  by  gift,  bequest 
or  purchase.  In  case  of  a  purchase  after  marriage  the  burden  is 
on  the  wife  to  prove  distinctly  that  she  paid  for  it  with  funds 
which  were  not  furnished  by  her  husband,  in  the  absence  of  which 
the  presumption  is  most  strong  that  the  husband  furnished  the 
means  of  payment,  which  rule  applies  the  same  to  real  property  as 
to  personal  property.  It  will  always  be  presumed  by  law,  in  the 
absence  of  evidence  to  the  contrary,  that  household  goods,  where 
husband  and  wife  are  living  together,  belong  to  the  husband.  A 
married  woman's  judgment  note  for  the  purchase  of  land  is  valid, 
but  a  married  woman  who  has  borrowed  money  from  her  father 
to  purchase  a  farm  and  who  has  given  a  bond  and  mortgage  to 
secure  the  debt,  cannot,  after  her  father's  death,  relieve  herself 
from  liability  upon  the  bond  by  tendering  to  his  executor  a  deed 
for  the  land.  A  wife  cannot  go  bail  for  her  husband  or  upon 
any  recognizance  for  another.  The  right  of  a  married  woman  to 
become  surety  for  another  is  expressly  prohibited  in  Pennsylvania 
by  statute. 

A  conveyance  of  real  estate  by  the  husband  during  coverture 
for  the  purpose  of  defeating  the  wife's  rights  is  fraudulent  and 
void  as  to  her.  So  far  as  personal  property  is  concerned,  the 
husband  can  transfer  whatever  he  desires.  But  a  husband  can- 
not transfer  personal  property  to  defeat  a  wife's  right  to  alimony 
or  maintenance,  and  any  transfer  of  personalty  made  with  ob- 
vious fraudulent  intent  upon  the  rights  of  the  wife  will  be  set 
aside.  For  example,  where  the  transfer  is  a  mere  device  by  which 
the  husband,  not  parting  with  the  absolute  dominion  over  the 
property  during  his  life,  seeks  at  his  death  to  deprive  his  widow 
of  her  distributive  share  in  his  personal  property,  it  would  be  held 
by  the  Courts  as  a  void  transfer. 

A  conveyance  or  devise  of  lands  to  a  husband  and  wife  does 


358  DOMESTIC  RELATIONS 

not  create  a  joint  tenancy,  but  what  is  known  as  an  estate  in 
entirety,  and  is  confined  to  the  relation  of  husband  and  wife.  A 
conveyance  to  husband  and  wife,  if  nothing  else  appears,  vests  in 
the  grantees  an  estate  in  entirety,  whether  the  consideration  was 
furnished  by  both  or  entirely  by  one  of  them.  Upon  the  death  of 
either,  his  or  her  share  passes,  by  the  doctrine  of  survivorship, 
to  the  other.  An  annuity  given  to  a  husband  and  wife  belongs 
solely  to  the  husband  during  their  joint  lives,  and  is  liable  for 
his  debts.  Where  payable  to  himself  and  wife,  it  remains  during 
his  life  subject  to  his  control,  and  the  wife  has  no  legal  interest 
therein  until  his  death. 

A  bequest  to  a  husband  and  wife  of  a  sum  of  money  in  equal 
proportions  does  not  create  an  estate  by  entireties,  and  hence  the 
husband's  share,  on  his  death  in  the  lifetime  of  the  testatrix, 
lapses,  and  does  not  pass  to  the  wife  by  survivorship.  Likewise  a 
bond  and  mortgage,  taken  in  the  name  of  a  husband  and  wife,  will 
not  vest  in  them  jointly,  so  that  either  will  have  the  right  of  sur- 
vivorship on  the  death  of  the  other  where  they  contribute  equally 
in  making  up  the  lo^an  out  of  their  separate  property,  but  on  the 
death  of  either  the  interest  of  the  decedent  will  vest  in  his  per- 
sonal representatives.  In  case  husband  and  wife,  each  being  pos- 
sessed of  means,  have  made  investments  jointly,  each  supplying 
half,  and  have  taken  the  securities  in  their  joint  names,  the  wife, 
on  the  decease  of  the  husband  during  her  lifetime,  does  not  take 
the  whole  by  the  right  of  survivorship.  The  rule  which  prevails 
as  to  the  right  of  survivorship,  in  the  case  of  united  holdings  of 
real  estate  by  husband  and  wife,  is  not  applicable  to  personalty. 
In  case  of  an  estate  in  entirety  being  created,  neither  husband 
nor  wife,  without  the  consent  of  the  other,  can  dispose  of  any 
part  of  the  estate  so  as  to  affect  the  right  of  survivorship  in  the 
other. 

During  marriage  the  husband  has  the  entire  use  of  the  estate 
in  entirety.  His  right  to  enjoy  the  use,  rents  and  profits  of  the 
estate  may  be  conveyed,  leased,  mortgaged  or  assigned  by  him, 
and  the  husband's  interest  may  be  reached  by  his  creditors. 

A  married  woman  under  the  terms  of  the  Pennsylvania  act 
of  May  4,  1855,  may  obtain  the  privilege  of  a  feme  sole  trader, 
i.  e.,  to  enjoy  the  right  of  engaging  in  business,  contracting  debts, 
etc.,  separate  and  distinct  from  her  husband,  and  a  woman  de- 
creed to  be  a  feme  sole  trader  under  this  act  may  convey  her 
real  estate  by  deed  in  which  her  husband  does  not  join.  Such 
conveyance,  however,  does  not  divest  the  husband's  estate  as 
tenant  by  the  curtesy.  The  statutes  relating  to  feme  sole  traders 
do  not  enable  a  married  woman  to  incur  an  obligation  as  surety, 


DOMESTIC  RELATIONS  359 

if  not  being  shown  to  be  necessary  to  the  prosecution  of  her 
separate  business  or  profession. 

A  husband  is  liable  for  the  reasonable  funeral  expenses  of 
his  wife,  whether  or  not  she  may  have  had  property  of  her  own. 

Agency. 

A  married  woman  may  become  the  agent  of  her  husband 
either  by  express  authority  or  by  implication  of  law.  A  hus- 
band may  appoint  his  wife  as  his  agent  either  orally  or  in  writ- 
ing, as  by  a  power  of  attorney.  The  wife's  implied  agency  for 
her  husband  may  be  inferred  from  his  acts  and  conduct  toward 
her.  The  law  will  imply  that  the  wif^is  acting  as  her  husband's 
agent  when  she  is  left  in  charge  of  his  property  during  his  ab- 
sence; the  implied  agency  of  the  wife  to  bind  the  husband  for 
necessaries  was  considered  in  the  previous  article.  A  wife,  while 
acting  within  the  scope  of  her  express  or  implied  agency,  binds 
her  husband  by  her  acts.  The  Supreme  Court  of  Pennsylvania 
has  qualified  this  rule  somewhat,  holding  that  a  husband  is 
bound  by  the  acts  of  his  wife  done  in  relation  to  his  property 
during  his  absence,  unless  within  a  reasonable  time  he  dis- 
avows her  acts.  A  married  woman,  acting  as  her  husband's 
agent,  may  sell,  mortgage,  hire  or  otherwise  dispose  of  his  real 
or  personal  property  or  may  sign  receipts  for  rent.  Unless  acting 
as  her  husband's  agent,  a  married  woman  has  no  authority  to  make 
or  rescind  any  contract  in  his  name  or  to  dispose  of  his  property. 
She  cannot  lease  his  lands  or  give  a  license  to  enter  upon  the 
same,  nor  has  she  any  implied  authority  to  draw  his  money  from  a 
savings  bank. 

A  wife,  intrusted  by  her  husband  with  the  ordinary  business 
of  a  tavern,  cannot  bind  him  by  a  contract  to  give  board  for  less 
than  the  usual  rate.  Likewise,  where  a  husband  permitted  his 
wife  to  carry  on  a  business  in  his  name,  and  to  draw  in  his  name 
checks  and  notes  to  be  used  in  the  course  of  business,  she  had  no 
power  to  make  him  liable  as  surety  for  loans  to  third  persons  or 
on  mere  accommodation  paper.  A  wife  cannot  bind  her  husband 
for  goods  purchased  for  her  daughter  by  a  former  marriage,  with 
directions  to  charge  them  to  herself,  and  send  them  to  her  daugh- 
ter residing  away  from  home,  and  even  a  promise  of  the  husband 
to  pay  therefor,  without  any  new  consideration,  is  not  binding. 

Conversely,  a  husband  has  no  power  to  bind  his  wife  without 
showing  express  appointment  as  her  agent,  or  unless  there  are 
such  acts  as  clearly  establish  by  implication  his  agency. 


36o  DOMESTIC  RELATIONS 

As  a  general  rule  of  law  a  husband  and  wife  cannot  enter  into 
a  valid  contract,  as  in  the  eyes  of  the  law  they  are  regarded  as 
one,  but  equity  will  in  many  instances  recognize  and  enforce  the 
same,  if  reasonable  and  not  prejudicial  to  third  persons.  For 
many  purposes  Courts  of  Equity  treat  husband  and  wife  as  dis- 
tinct persons,  recognizing  their  ability  to  contract  mutually.  It 
has  been  held  that  a  married  woman  who  lends  money  to  a  part- 
nership of  which  her  husband  is  a  member  cannot  recover  it  in 
equity,  or  in  law,  for  she  cannot  contract  with  nor  sue  her  hus- 
band.   This  matter  is  regulated  in  many  States  by  statute. 

Where  husband  and  wife  are  prohibited  from  entering  into  a 
valid  contract,  they  frequently  do  so  indirectly  by  means  of  the 
intervention  of  a  third  person  or  trustee.  The  object  of  the  Penn- 
sylvania act  of  April  15,  1851,  contemplating  the  intervention 
of  a  trustee  where  a  wife  loans  money  to  her  husband,  is  to  pro- 
tect the  wife  and  not  to  render  loans  made  by  her  to  her  husband 
in  good  faith  void.  In  equity,  independent  of  statute,  a  gift 
of  personal  property  from  a  husband  to  his  wife  will  be  upheld, 
if  fair  and  reasonable,  provided  the  rights  of  creditors  are  not 
prejudiced  thereby. 

It  has  been  held  that  a  husband  cannot  be  indicted  for  slan- 
dering his  wife,  but  either  husband  or  wife  may  be  indicted  for 
an  assault  and  battery  upon  the  other.  As  a  general  rule,  a  hus- 
band and  wife  cannot  sue  the  other  in  tort,  but  either  may  have 
the  other  arrested  for  a  crime. 

A  married  woman  cannot  in  Pennsylvania  become  an  incor- 
porator of  a  corporation,  except  it  be  a  charitable  one.  She  may, 
of  course,  own  shares  in  any  business  corporation. 

Neither  the  wife's  equitable  nor  statutory  separate  estate  is 
liable  for  the  debts  of  her  husband. 

It  will  be  unnecessary  to  discuss  the  respective  rights  of  a 
husband  and  wife  in  the  estate  of  the  other  after  death,  as  the  sub- 
ject of  dower,  curtesy  and  the  descent  of  property  has  heretofore 
been  treated. 

Rights  and  Liabilities  of  Survivor. 

Upon  the  death  of  the  wife  intestate  the  husband  is  entitled 
to  obtain  letters  of  administration  on  her  estate.  The  wife's 
separate  estate  shall  be  liable  for  debts  contracted  upon  the  faith 
of  it,  but  the  husband  is  liable  as  administrator  on  the  estate  of 
his  wife  for  her  debts,  only  to  the  extent  of  the  assets  thus 
received  by  him.  A  husband  on  the  death  of  his  wife  becomes 
tenant  by  the  curtesy  of  his  wife's  real  estate,  which  means  that 


DOMESTIC  RELATIONS  361 

the  husband  has  a  freehold  estate  therein  for  the  term  of  his 
natural  life.  Of  course  if  the  wife  has  made  a  will,  the  husband 
must  elect  whether  to  take  under  the  provisions  thereof  or  by 
virtue  of  his  right  as  tenant  by  the  curtesy. 

When  marriage  is  dissolved  by  the  death  of  the  husband, 
the  widow  is  entitled  to  administer  upon  his  estate.  The  common 
law  obligation  of  the  widow  to  bury  her  deceased  husband  rests 
upon  weaker  foundations  than  the  corresponding  obligation  of 
the  husband.  If  the  husband's  estate  is  sufficient  it  ought  to  bear 
the  expenses  of  his  burial.  As  to  the  possession  of  the  dead  body 
of  the  husband  for  preservation  and  burial,  the  surviving  wife  is 
treated  with  the  same  paramount  consideration  as  against 
strangers  and  even  the  next  of  kin  which  a  surviving  husband 
receives.  A  woman  who  has  paid  the  expenses  of  her  late  hus- 
band's final  illness  and  funeral  from  her  separate  property  may 
charge  the  same  against  his  estate.  As  a  matter  of  fact,  in  Penn- 
sylvania where  married  women  are  liable  on  their  contracts  for 
articles  necessary  for  the  support  of  the  family,  a  married  woman 
is  held  liable  on  her  contract  for  the  funeral  expenses  of  a  mother 
who  lived  in  the  household  and  died  without  means.  Upon  the 
death  of  her  husband,  a  widow  is  entitled  to  her  dower  in  his 
estate.  If  he  made  a  will  she  may  elect  to  take  thereunder,  or 
she  may  take  her  statutory  or  common  law  dower,  the  nature  of 
which  estate  we  have  heretofore  considered.  Where  husband  and 
wife  die  at  the  same  time,  or  practically  so,  and  personal  property 
is  found  in  one  receptacle,  to  which  both  had  access,  and  there  is 
nothing  to  show  how  much  each  contributed  to  the  fund,  a  Court 
of  law  will  consider  it  as  owned  by  them  in  equal  shares. 

Parent  and  Child. 

The  most  universal  relation  in  nature  according  to  Black- 
stone  is  that  of  parent  and  child.  Natural  law  and  the  precepts 
of  revealed  religion  demand  the  preservation  of  this  relation  in 
its  full  strength  and  purity.  Children  are  a  common  object  of 
affection  to  the  parents  and  draw  closer  the  ties  of  their  mutual 
love;  a  child's  education  is  a  matter  of  the  parents'  common 
care,  which  further  identifies  their  sympathies  and  objects. 

The  term  "parent"  signifies  the  immediate  father  or  mother 
of  a  child,  and  a  person  is  said  to  be  t»  loco  parentis  when  he  or 
she  is  invested  with  the  rights  and  charged  with  the  duties  of  a 
parent.  Children  are  divided  into  two  classes,  legitimate  and  ille- 
gitimate.   A  legitimate  child  is  one  bom  in  lawful  wedlock  or  is 


2,62  DOMESTIC  RELATIONS 

properly  brought  within  the  influence  of  a  valid  marriage  by  rea- 
son of  the  time  of  birth.  In  other  words,  a  child  to  be  legitimate 
must  be  born  in  a  manner  approved  of  by  the  law.  If  a  child  is 
begotten  before  marriage,  but  is  born  during  lawful  wedlock,  it 
is  legitimate,  as  would  also  be  the  case  if  begotten  in  lawful  wed- 
lock, but  born  afterward.  A  ceremonial  marriage  is  not  neces- 
sary. A  common  law  marriage  may  be  established  by  cohabita- 
tion and  reputation,  and  children  born  therein  are  legitimate. 
The  law  raises  the  strongest  presumption  of  the  legitimacy  of 
all  children  and  the  burden  of  proving  illegitimacy  is  upon  them 
who  assert  it. 

The  citizenship,  residence  or  domicile  of  a  child  is  that  of 
its  parent,  father,  if  living  at  time  of  birth ;  a  child  until  it  reaches 
its  majority  cannot  change  its  domicile  from  that  of  its  parents. 

The  relation  of  parent  and  child  may  be  created  in  two 
ways — (i)  naturally,  and  (2)  by  adoption.  A  natural  child  is 
a  child  born  in  lawful  wedlock.  Adoption  is  the  taking  or 
choosing  of  another's  child  as  one's  own.  Tlie  method  of  adop- 
tion in  the  various  States  is  pointed  out  by  local  law,  which 
usually  provides  that  under  a  judicial  decree  rendered  upon  due 
investigation,  any  person  may  adopt  as  his  own  the  child  of 
others,  who  shall  be  deemed,  for  the  purpose  of  inheritance  and 
all  other  legal  consequences  and  incidents  of  the  natural  relation 
of  parent  and  child,  the  child  of  the  parents  by  adoption,  the  same 
as  if  born  to  them  in  lawful  wedlock. 

In  Pennsylvania  the  adoption  of  children  is  regulated  by  the 
act  of  May  19,  1887,  which  provides  that  any  person  desirous  of 
adopting  any  child  as  his  or  her  heir  may  present  a  petition  to 
Court  averring  such  intention,  and  that  he  or  she  will  perform  all 
the  duties  of  a  parent  to  such  child.  The  Court,  if  satisfied  that 
the  welfare  of  the  child  will  be  promoted  by  such  adoption,  may, 
with  the  consent  of  the  parents  or  surviving  parent  of  such  child, 
or  if  the  father  or  mother  from  drunkenness,  profligacy,  or  other 
cause  shall  have  neglected  or  refused  to  provide  for  such  child 
for  the  period  of  one  year,  with  the  consent  of  the  non-neglecting 
father  or  mother  alone,  or  if  none,  the  guardians  or  overseers 
of  the  poor,  or  of  such  charitable  institution  as  shall  have  sup- 
ported such  child  for  at  least  one  year,  decree  that  such  child 
shall  assume  the  name  of  the  adopting  parent  and  enjoy  all  the 
rights  and  be  subject  to  all  the  duties  of  a  child.  Such  a  child 
is  entitled  to  inherit  from  the  adopting  parent,  but  the  personal 
estate  of  an  adopted  child  who  dies  intestate  (without  having 
made  a  will)  goes  to  the  natural  parent  instead  of  to  the  adopted 


DOMESTIC  RELATIONS  363 

parent.  No  relation  exists  between  a  widow  and  her  deceased 
husband's  adopted  child. 

The  law  imposes  three  duties  on  parents  toward  their  chil- 
dren— (a)  their  protection,  (b)  education  and  (c)  maintenance. 

So  far  as  protection  is  concerned,  Nature  works  so  strongly 
as  to  need  a  check  rather  than  a  spur.  The  law  holds  that  a 
parent  may  justify  an  assault  and  battery  in  defense  of  his  chil- 
dren. The  parent  should  protect  a  child  from  all  evil  and  injury 
and  may  maintain  and  uphold  his  children  in  their  lawsuits  with- 
out being  guilty  of  the  legal  crime  of  maintaining  quarrels. 

A  parent  is  bound  to  educate  and  maintain  an  infant  child; 
and  if  another  person  performs  this  natural  duty  for  the  parent 
with  knowledge  and  consent  the  parent  would  be  liable  to  pay 
a  reasonable  sum  to  such  person.  Under  the  public  school  system 
of  Pennsylvania  the  State  relieves  the  parent  of  this  duty.  The 
duty  of  education  imposed  upon  a  parent  does  not  extend  to  pro- 
viding a  child  with  a  trade  or  profession.  Over  the  religious  dis- 
cipline and  instruction  of  children  Courts  have  no  jurisdiction. 
However,  law  deals  only  with  the  civil  rights  and  duties  belonging 
to  the  relation  of  parent  and  child.  In  fact,  the  Supreme  Court 
of  Pennsylvania  has  decided  that  a  father  has  no  authority  to  con- 
trol or  interfere  with  the  rights  or  conscience  of  his  minor  child, 
who  has  arrived  at  the  age  of  discretion.  The  same  Court  has 
further  decided  that  although  a  father  cannot  compel  his  child 
against  the  child's  conviction  of  right  to  become  a  member  of  any 
particular  religious  denomination,  he  may  lawfully  restrain  the 
child  from  violating  the  religious  obligations  which  it  has  taken. 

Maintenance  is  that  support  which  one  person  gives  to 
another  for  his  living,  and  the  obligation  for  maintenance  on  the 
part  of  a  parent  extends  until  the  child  is  in  a  condition  to  pro- 
vide for  itself  and  merely  includes  necessary  support.  A  father 
is  under  no  legal  f)bligation  to  support  an  adult  widowed  daughter 
or  her  infant  offspring.  The  law  does  not  compel  a  father  to 
maintain  his  idle  and  lazy  children  in  ease  and  indolence,  but  he 
may  require  them  to  work  and  is  entitled  to  their  wages  until 
they  reach  their  majority. 

In  view  of  the  fact  that  parents  are  bound  to  the  performance 
of  certain  duties  toward  their  children,  they  are  vested  by  law 
with  certain  authority  over  them.  With  the  progress  of  refine- 
ment a  parent's  authority  over  the  person  of  a  child  has  been 
much  relaxed,  and  obedience  is  enforced  more  by  kindness  than 
severity.  A  Court  of  law  is  reluctant  to  interfere  in  matters  of 
family  discipline  and  will  discountenance  every  species  of  cruelty 


364  DOMESTIC  RELATIONS 

which  goes  by  the  name  of  parental  rule.  The  right  of  moderate 
chastisement  is  given  every  parent,  such  being  for  the  benefit  of 
the  child's  education;  but  a  parent  must  not  exceed  the  bounds 
of  moderation  and  inflict  cruel  and  merciless  punishment.  For 
example,  where  a  father  put  his  child,  a  blind  and  helpless  boy, 
in  a  cold  and  damp  cellar  without  fire  during  several  days  in  mid- 
winter, he  was  held  subject  to  indictment  and  punishment  for 
such  cruel  treatment.  A  parent  who  suffers  his  child  to  starve 
to  death  is  guilty  of  murder.  A  child's  tenderness  of  age  and 
helplessness  are  elements  in  such  cases,  and  when  children  grow 
up  they  are  presumed  to  provide  for  their  urgent  wants. 

The  father,  and  on  his  death  the  mother,  is  generally  entitled 
to  the  custody  of  infant  children,  inasmuch  as  they  are  their  nat- 
ural protectors  for  maintenance  and  education.  It  may  be  stated 
as  a  general  rule  that  the  father  is  entitled  to  the  custody  of  his 
legitimate  children,  to  the  exclusion  of  their  mother,  though  they 
be  within  the  age  of  nurture.  If  the  child  be  of  an  age  to  exercise 
choice,  a  Court  will  leave  him  to  elect  where  he  will  go;  if  not, 
he  goes  to  the  father,  unless  he  had  abused  the  right  to  the  cus- 
tody of  his  child,  or  there  be  an  apprehension  of  cruelty  or  some 
exhibition  of  gross  profligacy  or  want  of  ability  to  provide  for 
his  children.  But  if  the  parents  live  in  a  state  of  separation 
without  being  divorced,  and  without  the  fault  of  the  wife,  the 
courts  may,  on  application  of  the  mother,  award  the  custody  of 
the  child  to  her. 

A  parent  will  not  be  allowed  to  divest  himself  of  the  custody 
of  a  child,  it  being  placed  upon  him  by  law,  not  for  his  gratifica- 
tion, but  on  account  of  his  duties.  Contracts  for  the  surrender 
of  the  care  and  custody  of  children  are  held  to  be  against  public 
policy  and  no  bar  to  the  parent  in  an  attempt  to  regain  such 
custody.  It  sometimes  happens,  however,  that  parents  have  aban- 
doned their  minor  children,  or  by  act  and  word  have  transferred 
their  custody  to  another.  In  such  cases  where  the  custodian  is 
in  every  way  a  proper  person  to  have  the  care,  training  and  edu- 
cation of  the  infant,  and  the  Court  is  satisfied  that  its  social, 
moral  and  educational  interests  will  be  best  promoted  by  remain- 
ing in  the  custody  of  the  person  to  whom  it  was  transferred  or 
received  when  abandoned,  the  new  custody  will  be  treated  as 
lawful  and  exclusive.  After  the  affections  of  both  child  and 
adopted  parent  become  engaged  and  a  state  of  things  has  arisen 
which  cannot  be  altered  without  risking  the  happiness  of  the 
child,  and  the  father  wants  to  reclaim  it,  the  better  opinion  is 
that  he  is  not  in  a  position  to  have  the  interference  of  the  Court 


DOMESTIC  RELATIONS  365 

in  his  favor.     His  parental  rights  must  yield  to  the  feelings, 
interests  and  rights  of  other  parties  acquired  by  his  consent. 

Right  to  Child's  Services  and  Earnings. 

Blackstone  says  that  the  father  should  have  the  benefit  of  his 
children's  labor  while  they  live  with  him  and  are  maintained 
by  him.  This  right,  the  same  as  that  of  custody,  is  based  upon 
the  parental  duty  of  maintenance  and  furnishes  compensation 
to  the  father  for  his  own  services  rendered  the  child.  This  is 
certainly  true  of  the  father,  and  the  better  opinion  gives  the 
same  right  to  the  mother  after  the  death  of  the  father,  especially 
where  the  child  is  supported  by  her.  In  certain  cases  this  right  of 
services  extends  to  adult  children.  For  instance,  after  attaining 
majority,  the  child  may  elect  to  remain  with  the  father  as  his 
servant,  and  be  supported  by  him,  or  may  be  incapable  of  eman- 
cipation by  reason  of  imbecility,  and  if  in  such  case  he  con- 
tinues to  live  with  the  father,  the  latter  will  be  liable  for  the 
child's  support  and  entitled  to  receive  his  wages. 

A  parent  can  maintain  an  action  for  services  against  a  cor- 
poration which  knowingly  hires  and  keeps  in  its  employ  a  minor 
child  of  such  parent  against  the  latter's  will.  The  question 
whether  a  minor  over  eighteen  years  of  age  may  enlist  in  the 
military  service  of  the  United  States  without  the  consent  of  his 
parent  or  guardian  seems  to  be  unsettled.  It  has  been  held  that 
where  a  man  enticed  away  the  minor  son  of  another,  against  the 
father's  consent,  and  placed  him  in  the  United  States  Army,  that 
he  was  liable  for  the  value  of  his  son's  services  during  the  whole 
period  of  his  absence  as  a  soldier. 

A  parent  has  no  title  to  the  property  of  a  child  nor  is  the 
capacity  of  the  latter  to  take  property  or  receive  money  by  grant, 
gift  or  otherwise,  except  as  a  compensation  for  services,  in  any 
degree  qualified  or  limited  during  minority.  Whatever,  there- 
fore, an  infant  acquires  which  does  not  come  to  him  as  a  com- 
pensation for  services  rendered  belongs  absolutely  to  him,  and 
his  father  cannot  interpose  any  claim  to  it,  either  as  against 
the  child  or  as  against  third  persons  who  claim  title  or  possession 
from  or  under  the  infant.  The  law  vests  no  authority  in  a  parent 
to  manage  or  control  a  child's  property,  unless  formally  appointed 
as  guardian  by  a  Court  of  competent  jurisdiction,  and  it  is  well 
to  bear  in  mind  that  a  Court  will  seldom  appoint  a  parent  guardian 
of  a  child's  property. 

Gifts  between  parents  and  children  are  valid  unless  prej- 


366  DOMESTIC  RELATIONS 

udicial  to  the  creditors  of  the  party  making  the  gift.  A  father 
can  settle  property  in  trust  upon  his  children  the  same  as  he  may 
upon  his  wife.  Gifts  from  a  child  to  a  parent,  especially  when 
made  just  after  attaining  majority  or  while  still  under  the  parental 
control  and  authority,  are  looked  upon  by  the  law  with  suspicion, 
and  the  parent  is  required  to  show  that  they  were  the  spontaneous 
acts  of  the  child  with  a  full  understanding  of  his  rights  and 
position,  or  equity  will  set  them  aside.  Gifts  between  parents 
and  children  are  ordinarily  supported  upon  the  consideration  of 
natural  love  and  affection. 

In  transactions  between  members  of  the  same  family,  even 
though  that  relation  subsists  between  them  from  whence  a  Court 
will  infer  the  moral  certainty  of  considerable  influence  and  the 
probability  of  its  having  been  exercised,  yet  if  the  transaction  be 
one  that  tends  to  the  peace  or  security  of  the  family,  to  the 
avoiding  of  family  disputes  and  litigation,  or  to  the  preservation 
of  the  family  property,  the  principles  by  which  such  transactions 
must  be  tried  are  not  those  applicable  to  dealings  between  stran- 
gers, but  such  as  on  the  most  comprehensive  experience  have  been 
found  to  be  best  for  the  interest  of  families. 

Rights  and  Liabilities  in  Tort. 

If  a  minor  child  is  injured  through  the  negligence  or  mal- 
feasance of  another,  the  parent  cannot  recover  for  the  injury 
as  such,  this  right  belonging  solely  to  the  child,  however,  the 
father  may  recover  for  the  loss  to  himself  caused  by  the  injury, 
which  will  be  measured  by  the  loss  of  the  child's  services  during 
minority,  if  a  permanent  injury;  otherwise  until  recovery,  and 
by  the  expenses  of  the  illness  caused  by  the  injury.  On  the 
death  of  the  father  the  mother  succeeds  to  his  rights.  Any  one, 
in  fact,  standing  in  loco  parentis  to  the  child  may  recover  for 
an  injury  to  the  child  on  the  same  principles. 

In  regard  to  the  liability  of  a  parent  for  injuries  done  to  third 
persons  by  a  minor  child,  it  may  be  stated  as  a  general  principle 
of  law  that  a  father  is  not  liable  for  the  torts  of  his  minor  chil- 
dren. This  rule  does  not  apply,  however,  to  cases  where  the 
tort  is  committed  by  the  child  while  engaged  in  performing  work 
directed  by  the  father;  where  a  child  is  engaged  in  the  father's 
service  and  in  doing  work  authorized  or  commanded  by  him,  he 
is  responsible  for  loss  resulting  to  others  from  the  negligence  of 
the  child,  and  it  has  been  held  that  where  a  father  permits  his 
young  children  to  do  upon  his  premises  acts  which  are  likely  to 


DOMESTIC  RELATIONS  367 

cause  injury  to  passers-by,  he  is  responsible  for  the  injuries  so 
resulting,  although  he  did  not  by  express  words  authorize  or 
direct  the  acts.  But  a  parent  cannot  be  held  liable  for  the  wil- 
ful trespasses  and  torts  of  his  infant  children  when  he  neither 
assents  to  nor  ratifies  them.  In  other  words,  a  parent  incurs  no 
responsibility  for  the  acts  of  minor  children  if  he  can  prove  that 
he  was  unable  to  prevent  the  acts  which  give  rise  to  the  liability. 

Rights  and  Duties  of  Children. 

The  duties  which  are  enjoined  upon  children  to  the  parents 
are  obedience  and  assistance  during  their  own  minority  and 
gratitude  and  reverence  during  the  remainder  of  their  lives. 
Disobedience  to  parents  was  punished  under  the  Jewish  law 
with  death  (Deut.,  xxii,  18)  and  with  the  Hindoos  it  was  attended 
with  the  loss  of  the  child's  inheritance.  The  classical  scholar  can- 
not be  at  a  loss  to  recollect  how  assiduously  the  ancient  Greeks 
provided  for  the  exercise  of  filial  gratitude.  Solon  ordered  all 
persons  who  refused  to  make  due  provisions  for  their  parents  to 
be  punished  with  infamy,  and  the  same  penalty  was  incurred  for 
personal  violence  toward  them.  No  one  can  read  "King  Lear" 
without  recognizing  the  sublimity  of  an  unquestioning  faith  in  this 
moral  duty. 

A  child  has  no  absolute  right  of  inheritance  from  the  parents. 
In  most  of  the  United  States  statutes  have  been  passed  providing 
for  the  maintenance  of  indigent  parents  by  their  children,  but 
this  obligation  can  only  be  enforced  in  the  mode  pointed  out  by 
statute. 

Emancipation. 

It  is  possible  in  law  for  a  minor  child  to  become  freed  from 
parental  control  by  becoming  what  is  called  "emancipated." 
Emancipation  means  the  release  of  a  child  from  the  obligations 
due  a  parent,  and  is  not  a  right  enforceable  by  the  child,  but  a 
privilege  given  by  the  parent.  So  far  as  the  general  public  is  con- 
cerned, the  emancipation  of  a  minor  by  its  parent  does  not  give 
the  minor  the  right  to  enter  into  valid  contracts,  but  it  gives  the 
child  the  right  to  its  own  wages  or  earnings.  Emancipation  may 
be  accomplished  either  by  entering  into  a  written  agreement  or  it 
may  be  inferred  from  the  conduct  of  the  parent  in  permitting 
the  child  to  use  his  time  as  though  he  were  emancipated.  If  a 
parent  deserts  or  abandons  a  child,  the  child  is  released  from  all 
filial  duties  which  the  law  will  enforce,  and  may  seek  his  own 


368  DOMESTIC  RELATIONS 

welfare  in  his  own  way.  The  marriage  of  a  minor  child  with  the 
consent  of  a  parent  operates  as  an  emancipation,  giving  the  minor 
child  the  right  to  apply  his  earnings  to  the  support  of  his  own 
family. 

Advancements. 

A  father  sometimes  gives  to  a  child  an  advancement  on  its 
distributive  share  in  his  estate.  Whether  gifts  made  to  a  child 
during  the  lifetime  of  a  father  are  to  be  regarded  as  an  advance- 
ment is  a  question  of  intention.  Small  and  inconsiderate  sums 
of  money  given  a  child  for  current  expenses,  ornament  or  educa- 
tion are  not  to  be  regarded  as  advancements.  Loans  of  con- 
siderable importance  to  a  son,  annuities  and  large  sums  advanced 
for  a  trade  or  profession  are  usually  regarded  as  advancements, 
which,  upon  the  death  of  the  father  and  the  distribution  of  his 
estate,  are  to  be  deducted  from  the  share  of  the  child  who  received 
the  advancement. 

The  authorities  are  uniform  to  the  effect  that  a  person  is  not 
entitled  to  the  custody  and  earnings  of  stepchildren  nor  bound 
by  law  to  maintain  them.  However,  if  a  stepfather  voluntarily 
assumes  the  care  and  protection  of  a  stepchild  he  stands  in 
loco  parentis  for  the  time  being. 

In  concluding  the  subject  of  parent  and  child  we  will  inquire 
into  the  authority  whereby  children  may  be  taken  from  their 
parents  and  committed  to  penal  and  charitable  institutions.  The 
law  regulating  this  matter  is  entirely  statutory.  The  principles 
involved  in  the  construction  of  such  statutes  are  founded  on 
familiar  principles  of  law  and  have  enabled  the  Courts  to  enlarge 
the  scope  of  these  institutions.  Where  the  commitment  of  a 
minor  is  for  a  distinct  criminal  offense  he  is  entitled  to  all  the 
regular  formalities  of  criminal  procedure,  and  statutes  author- 
izing the  summary  commitment  of  minor  criminals  without  a 
trial  by  jury  have  been  held  unconstitutional.  Where,  however, 
the  minor  has  committed  no  criminal  offense,  the  State  has  author- 
ity to  commit  to  a  child-saving  institution  by  summary  procedure 
any  child  who,  destitute  of  parental  care,  seems  likely  to  grow  up 
to  be  a  charge  upon  the  State,  either  as  a  criminal  or  as  a  pauper. 

House  of  Correction — Refuge — ^Huntingdon  Reformatory. 

In  Pennsylvania,  under  the  act  of  June  2,  1871,  minors  not 
under  sixteen  years  of  age,  absenting  themselves  from  school,  or 
who .  shall  disobey  their  parents'  commands  or  be  found  idle  in 
the  streets,  may  be  arrested  upon  the  complaint  of  the  parents  of 


DOMESTIC  RELATIONS  369 

said  minor,  or  upon  the  complaint  of  any  citizen,  and  may  upon  a 
hearing  be  committed  to  the  House  of  Correction.  In  the  case 
of  a  boy,  the  time  of  commitment  must  not  exceed  his  majority, 
and  in  the  case  of  a  girl  must  not  be  for  a  period  beyond  the 
age  of  eighteen.  All  children  not  under  the  age  of  sixteen  years, 
deserting  their  homes  without  good  and  sufficient  cause,  or  keep- 
ing company  with  dissolute  or  vicious  persons,  against  the  lawful 
commands  of  their  fathers,  mothers  or  guardians  or  other  per- 
son standing  in  the  place  of  a  parent,  shall  be  deemed  disorderly 
children. 

In  Philadelphia  children  convicted  of  criminal  offenses  or 
guilty  of  incorrigible  or  vicious  conduct  may  be  committed  to  the 
House  of  Refuge.  The  House  of  Refuge  is  not  a  prison,  but 
a  school.  The  object  of  the  charity  is  reformation  by  training 
its  inmates  to  industry,  by  imbuing  their  minds  with  the  prin- 
ciples of  morality  and  religion,  by  furnishing  them  with  the  means 
of  earning  a  living;  and,  above  all,  by  separating  them  from  the 
corrupting  influence  of  improper  associates.  To  this  end  the 
natural  parents,  when  unequal  to  the  task  of  education  or  un- 
worthy of  it,  are  superseded  by  the  parens  p'atrice  or  common 
guardian  of  the  community,  the  State. 

Under  the  act  of  April  28,  1887,  any  male  criminal  between 
the  age  of  eighteen  and  twenty-five,  and  not  known  to  have  been 
previously  convicted  of  crime,  may  be  committed  to  the 
Huntingdon  Reformatory. 

Juvenile  Court. 

The  act  of  April  23,  1903,  vested  in  the  Courts  of  Quarter 
Sessions  of  the  Peace  in  the  respective  counties  of  Pennsylvania 
jurisdiction  in  all  proceedings  which  may  be  brought  before  them 
affecting  the  treatment  and  control  of  dependent,  neglected,  incor- 
rigible and  delinquent  children  under  the  age  of  sixteen  years. 
Any  citizen  may  petition  the  Court,  setting  forth  that  a  child  is 
neglected,  dependent  or  delinquent  and  is  in  need  of  the  protection 
of  the  Court.  The  Court  has  power  to  appoint  discreet  persons 
of  good  character  to  serve  as  probation  officers  during  the  pleasure 
of  the  Court,  without  compensation,  such  officers  to  make  such 
investigations  as  the  Court  may  direct.  Upon  the  hearing  of 
any  charge  against  a  juvenile,  the  Court,  considering  the  best 
interest  of  the  State  and  the  child's  own  good,  may  commit  said 
child  to  the  care  of  its  parents,  subject  to  the  supervision  of  a 
probation  officer,  or  to  some  suitable  institution,  or  to  the  care 

24 


370  DOMESTIC  RELATIONS 

of  some  reputable  citizen  of  good  moral  character,  or  to  the 
care  of  some  training  or  industrial  school. 

The  act  above  referred  to  makes  it  unlawful  to  hold,  pend- 
ing a  hearing,  a  juvenile  in  confinement  in  any  county  or  other 
jail,  police  station  or  in  any  institution  to  which  adult  convicts  are 
sentenced.  The  County  Commissioners  in  each  county  of  this 
Commonwealth  are  required  to  provide  a  separate  room  or  rooms 
or  a  suitable  building  to  be  used  exclusively  for  the  confinement 
of  children  under  sixteen  years  of  age,  awaiting  trial  or  hearing 
in  any  of  the  Courts  of  the  county. 

It  is  the  object  of  the  law  to  train  and  discipline  children 
to  become  useful  and  law-abiding  citizens,  and  to  protect  them 
from  contaminating  influences  and  the  indiscretions  incident  to 
their  tender  years.  With  this  end  in  view  statutes  have  been 
passed  forbidding  the  sale  of  intoxicating  liquor  and  cigarettes 
to  minors.  As  a  further  illustration  of  the  watchful  eye  exercised 
by  the  law  over  minor  children,  the  act  of  April  i8,  1905,  pro- 
vides that  any  licensed  keeper,  proprietor,  owner  or  superintend- 
ent of  any  public  pool  room,  billiard  room,  bowling  saloon  or 
ten-pin  alley  who  shall  allow  or  permit  any  person  under  the 
age  of  eighteen  years  to  be  present  therein,  shall  be  guilty  of  a 
misdemeanor,  and  upon  conviction  thereof  be  punished  by  fine  of 
not  less  than  ten  dollars  nor  more  than  one  hundred  dollars. 

Having  concluded  the  subject  of  parent  and  child,  it  is  appro- 
priate that  we  consider  next  the  relation  of  guardian  and  ward, 
particularly  in  view  of  the  fact  that  the  latter  is  so  closely  allied 
to  the  former. 

Guardian  and  Ward. 

A  guardian  has  been  defined  as  one  who  legally  has  the 
care  and  management  of  a  person  or  the  estate  or  both  of  a  child 
during  minority.  A  ward  is  one  whose  person  or  property,  or 
both,  are  under  the  care  of  a  guardian.  The  relation  of  guardian 
and  ward  may  exist  during  the  lives  of  the  parents,  if  the  infant 
becomes  vested  with  property,  but  it  usually  takes  place  on  the 
death  of  the  father,  and  the  guardian  is  intended  to  supply  his 
place.  But  to  give  the  clearest  conception  of  the  status  of  a 
guardian,  the  following  definition  is  perhaps  the  most  complete: 
"A  guardian  is  a  person  lawfully  invested  with  the  power  and 
charged  with  the  duty  of  taking  care  of  the  person  and  managing 
the  property  and  rights  of  another  person,  who  for  some  peculiar- 
ity, or  defect  of  age,  understanding  or  self-control,  is  considered 


DOMESTIC  RELATIONS  371 

incapable  of  administering  his  own  aflairs."  From  this  defini- 
tion it  will  be  observed  that  guardianship  applies  to  idiots, 
lunatics,  spendthrifts  and  the  like,  the  same  as  to  minor  children. 

According  to  ^he  classification  given  by  Chancellor  Kent  in 
his  American  Commentaries,  there  are  two  kinds  of  guardianship 
— one  by  the  common  law  and  the  other  by  statute.  There  were 
three  kinds  of  guardian  by  common  law — (a)  guardian  by  nature, 
(b)  guardian  by  nurture  and  (c)  guardian  by  socage. 

Guardianship  by  nature  at  common  law,  according  to  the 
early  English  authorities,  was  the  right  of  the  father,  mother, 
next  of  kin,  in  the  order  named,  to  the  custody  of  the  person 
of  the  heir  apparent.  In  America,  at  the  present  day,  the  term 
"guardian  by  nature"  is  applied  to  all  the  incidents  of  the  common 
law  guardianship  by  nature,  with  the  exception  that  it  is  not 
confined  to  the  heir  apparent,  and  the  authorities  in  this  country 
hold  that  a  father,  and  on  his  decease  the  mother,  is  guardian  by 
nature  of  the  child.  After  their  death  the  paternal  grandfather 
or  next  of  kin  is  the  infant's  guardian  by  nature.  This  species 
of  guardianship  extends  only  to  the  custody  of  the  person  of 
the  ward  and  not  to  his  property,  either  personal  or  real.  Guar- 
dianship by  nurture  never  existed  in  the  United  States;  in  Eng- 
land it  was  the  right  only  of  the  father  or  mother  to  the  custody 
of  the  person  of  an  infant,  not  the  heir  apparent,  who  was  without 
any  other  guardian.  It  ended  when  the  ward  reached  the  age  of 
fourteen,  and  extended  only  to  the  care  of  the  person  and  educa- 
tion of  the  infant,  no  right  to  the  control  of  the  property  of  the 
ward  vesting  in  a  guardian  of  this  class. 

Guardianship  in  Socage. 

Guardianship  in  socage  at  common  law  arose  whenever  an 
infant  under  fourteen  years  of  age  acquired  title  to  real  estate, 
the  chief  object  of  this  trust,  according  to  Blackstone,  being  the 
protection  of  such  property  and  the  instruction  of  the  young 
heir  in  the  pursuit  of  agriculture.  Those  who  followed  the  trea- 
tise on  feudal  tenures,  under  the  subject  of  real  estate,  appearing 
in  another  chapter,  will  better  understand  this  species  of  guar- 
dianship. It  applies  only  when  the  infant  inherits  land  and 
cannot  exist  if  his  estate  be  merely  personal.  It  was  neces- 
sary that  the  heir's  title  must  have  been  legal,  not  equitable. 
These  guardians  in  socage  cease  when  the  child  arrives  at  the 
age  of  fourteen  years,  for  he  is  then  entitled  to  elect  his  own 
guardian  and  compel  an  accounting  of  the  rents  and  profits 


372  DOMESTIC  RELATIONS 

received  until  that  time.     Guardianship  by  socage  only  exists 
to-day  in  a  limited  degree  as  to  certain  features. 

The  second,  and  by  far  more  important,  division  of  guar- 
dians is  statutory.  At  common  law  a  father  has  no  right  to 
appoint  a  testamentary  guardian  for  his  child.  This  right  was 
given  by  the  Statute  of  12  Chas.  II,  c.  24,  by  the  terms  of  which 
the  father  by  his  last  will  and  testament  or  by  deed  might  appoint 
a  guardian  for  his  infant  child  until  he  was  of  full  age.  This 
statute  has  been  adopted,  or  substantially  so,  in  practically  every 
State  of  the  Union. 

A  testamentary  guardian  cannot  transfer  the  custody  of  the 
ward  by  deed  or  will  to  any  other  person,  the  trust  being  personal. 
The  infant  ward  cannot  compel  an  accounting  until  majority  is 
reached.  This  kind  of  guardianship  covers  the  person  as  well 
as  estate.  If  the  ward  be  a  girl  her  marriage  terminates  a 
testamentary  guardianship. 

In  Pennsylvania  a  substitute  for  the  eighth  section  of  the 
act  of  12  Chas.  II  is  found  in  the  fourth  section  of  the  act  of 
April  8,  1833,  which,  after  defining  the  power  of  making  a  will, 
enacts  that  "Every  person  competent  to  make  a  will,  being  the 
father  of  any  minor  child  unmarried,  may  devise  the  custody  of 
such  child  during  his  or  her  minority  or  for  any  shorter  period." 
The  sixth  section  of  the  act  of  May  4,  1855,  qualifies  the  power 
thus  conferred  by  saying  that  no  father  who  shall  have  for  one 
year  or  upward  previous  to  his  death  wilfully  neglected  or  refused 
to  provide  for  his  child  or  children,  shall  have  the  right  to 
appoint  any  testamentary  guardian  of  him,  her  or  them  during 
minority.  The  father  of  an  illegitimate  child  has  no  power  to 
appoint  its  guardian,  nor  may  a  grandfather  appoint  by  will  a 
guardian  for  the  grandchild,  child  of  his  son  or  daughter,  unless 
such  son  or  daughter,  if  living,  receives  and  accepts  a  benefit  from 
the  will.  The  right  of  custody  bestowed  by  the  father's  will 
will  prevail  against  that  of  the  child's  own  mother;  although  a 
testamentary  guardian  does  not  owe  his  appointment  to  a  Court, 
he  is  subject  to  removal  for  cause  by  it. 

By  the  terms  of  the  first  section  of  the  act  of  June  10,  1881, 
it  is  provided  that  every  mother  of  an  unmarried  minor  child 
who  shall  leave  to  such  child  an  estate  may  appoint  a  testamentary 
guardian  for  such  child,  provided  that  the  father  be  not  living, 
or,  being  deceased,  he  has  not  appointed  a  guardian.  It  will 
be  interesting  to  many  to  know  that  under  the  act  of  May  25, 
1887,  whenever  any  husband,  from  drunkenness,  profligacy  or 


DOMESTIC  RELATIONS  373 

any  other  cause,  has  neglected  or  refused  to  provide  for  his 
wife  and  children,  or  has  deserted  them,  such  wife  may,  if  she 
leave  to  her  children  an  estate,  appoint  a  testamentary  guardian. 
Owing  to  a  popular  misapprehension  upon  the  matter,  it  is  well 
to  bear  in  mind  that  a  testamentary  guardian  cannot  be  super- 
seded by  the  selection  of  the  child  on  its  reaching  the  age  of 
fourteen.  Upon  cause  shown  the  Orphans'  Court  may  require 
a  testamentary  guardian  to  give  security  for  the  ward's  protection. 

The  last  class  of  guardians  are  guardians  ad  litem,  being  a 
guardian  chosen  to  represent  the  ward  in  legal  proceedings.  He 
has  no  power  to  bind  the  infant  by  anything  further  than  the 
ordinary  proceedings  of  the  suit. 

Our  courts  of  law  are  vested  with  authority  by  statute  to 
appoint  guardians  for  the  protection  of  persons  legally  incompe- 
tent to  control  themselves  or  their  property.  Two  important 
elements  enter  into  the  jurisdiction  of  the  Court  to  appoint  a 
guardian.  The  ward  must  be  a  resident  within  the  jurisdiction 
of  the  Court,  and  the  property  possessed  by  him  must  be  located 
therein.  Sometimes  where  the  ward  is  a  non-resident  a  guar- 
dian is  frequently  appointed  for  the  collection  and  preservation 
of  the  ward's  estate  located  within  the  jurisdiction. 

Where  the  husband  is  an  infant  the  wife's  estate  devolves 
upon  the  guardian  of  her  husband  and  the  appointment  of  a  guar- 
dian for  the  wife  is  a  nullity.  Of  course,  a  guardian  cannot  be 
appointed  for  a  minor  whose  natural  protector  is  living,  as,  for 
instance,  the  adult  husband  of  an  infant  wife.  It  has  been  held 
that  a  guardian  may  be  appointed  for  an  infant  whose  parents 
have  abandoned  him,  or  for  an  infant  who  by  statutory  proceed- 
ings has  been  taken  from  its  parents  and  placed  in  the  custody 
of  a  person  selected  by  the  Court. 

In  Pennsylvania  the  fifth  section  of  the  act  of  March  29, 
1832,  gives  the  Orphans'  Court  of  each  county  care  of  the  persons 
of  minors  resident  within  such  county  and  of  their  estates,  and  are 
given  power  to  admit  such  minors  when  and  as  often  as  there 
shall  be  occasion,  to  make  choice  of  guardians,  and  to  appoint 
guardians  for  such  as  they  shall  judge  too  young  or  otherwise 
incompetent  to  make  choice  for  themselves.  An  important  pro- 
viso of  this  act  is  that  persons  of  the  same  religious  persuasion 
as  the  parents  of  the  minors  shall  in  all  cases  be  preferred  by 
the  Court  in  their  appointment,  and  such  appointment  or  admis- 
sion of  a  guardian  by  the  Orphans'  Court  of  the  county  in  which 
the  minor  resides  shall  have  the  like  effect  in  every  other  county 


374  DOMESTIC  RELATIONS 

of  this  Commonwealth  as  in  that  by  the  Orphans'  Court  of  which 
he  shall  have  been  so  admitted  or  appointed. 

Who  may  be  Appointed  Guaxdians. 

It  is  a  well-settled  rule  of  law  that  in  the  appointment  of  a 
guardian  the  interest  of  the  minor  is  the  paramount  consideration. 
A  Court  will  take  into  consideration  not  merely  temporary  wel- 
fare, but  the  state  of  the  minor's  affections,  attachments,  his  train- 
ing, education  and  morals.  The  guardian's  trust  is  one  of  obliga- 
tion and  duty,  and  not  of  speculation  and  profit.  He  cannot  reap 
any  benefit  in  any  contract  or  purchase,  or  sell,  as  to  the  subject 
of  the  trust.  If  he  settle  a  debt  upon  beneficial  terms,  or  pur- 
chase it  at  a  discount,  the  advantage  is  to  accrue  entirely  to  the 
infant's  benefit.  Consequently  an  important  qualification  of  a 
guardian  is  personal  disinterestedness  and  absolute  freedom  from 
social  or  financial  obligations  antagonistic  to  the  financial  interests 
of  his  ward.  Such  opposing  influences  have  a  tendency  to  divide 
and  weaken  the  strict  loyalty  which  the  law  demands  of  a 
guardian  towards  his  ward. 

A  partnership  cannot  be  appointed  a  guardian,  nor  can  a 
corporation  unless  specially  authorized  to  do  so  by  its  charter. 

When  vacancies  occur  in  a  guardianship,  by  the  death  of 
the  guardian,  a  second  may,  and  properly  should  be  appointed  if 
the  minority  still  continues.  If  a  guardian  resign,  or  his  appoint- 
ment be  revoked,  the  Orphans'  Court  may  appoint  a  successor. 
Where  the  duration  of  the  guardianship  has  expired,  the  guar- 
dian must  render  a  strict  accounting  of  his  trust,  the  guardian- 
ship terminating  on  the  arrival  of  the  ward  at  majority,  except 
for  the  purpose  of  a  final  accounting  and  settlement  with  the 
ward.  As  a  matter  of  fact,  while  the  guardian's  trust  expires  on 
the  ward's  reaching  majority,  the  responsibility  of  his  relation 
may  continue,  as,  for  instance,  where  he  has  not  made  his  final 
account  with  the  ward,  or  where  the  guardian  incurs  a  personal 
responsibility  on  a  contract  made  by  his  ward  in  pursuance  of  an 
express  authority. 

The  Orphans'  Court  has  power  to  remove  any  guardian 
for  mismanagement  of  the  estate,  or  misconduct  as  to  the  care  of 
the  person  of  the  ward.  The  Supreme  Court  of  Pennsylvania 
has  held  that  where  the  management  of  the  trust  property  has 
been  adverse  to  the  interests  of  the  minor,  and  a  feeling  of  hos- 
tility has  been  engendered,  which  may  prov6  embarrassing  and 
injurious  to  all  parties,  a  petition  for  the  removal  of  the 
guardian  will  be  granted. 


DOMESTIC  RELATIONS  375 

Particular  Rights  and  Duties  of  Guardians. 

Having  considered  briefly  the  nature  of  guardianship,  how 
created  and  terminated,  it  will  be  instructive  to  point  out  a  few  of 
the  particular  rights  and  duties  appertaining  to  this  relationship. 
Every  general  guardian,  whether  testamentary  or  appointed,  is 
bound  to  keep  safely  the  real  and  personal  estate  and  the  issues 
and  profits  of  the  real  estate,  and  if  he  suffers  any  waste,  sale 
or  destruction  of  the  inheritance  he  is  liable  to  be  removed  and 
to  answer  in  treble  damages.  If  the  guardian  has  been  guilty  of 
negligence  in  the  keeping  or  disposition  of  the  infant's  money, 
whereby  the  estate  has  incurred  loss,  the  guardian  will  be  obliged 
to  sustain  that  loss. 

The  ninth  section  of  the  act  of  March  29,  1832,  provides  that 
"Every  guardian  shall,  within  thirty  days  after  any  property 
of  his  ward  shall  have  come  into  his  hands  or  possession,  file  in 
the  office  of  the  clerk  of  the  Orphans'  Court  a  just  and  true 
inventory  and  statement,  on  oath  or  affirmation,  of  all  such  prop- 
erty or  estate.  No  appraisement  is  required  by  the  act  of 
Assembly,  but  it  is  usual  for  the  guardian  to  affix  to  the  names 
or  descriptions  of  the  articles  in  the  inventory  estimates  of  their 
value  in  money. 

In  Pennsylvania  the  law  requires  every  guardian,  whether 
required  by  the  Court  to  give  security  or  not,  at  least  once 
in  every  three  years,  and  at  any  other  time  when  directed  by 
the  Court,  to  render  an  account  of  the  management  of  the 
minor's  property  under  his  care,  and  on  the  arrival  of  the  ward 
at  full  age  settle  in  the  Register's  office  a  full  and  complete  ac- 
count of  his  guardianship',  including  all  the  items  embraced  in 
each  partial  settlement.  Although  the  filing  of  triennial  accounts 
is  frequently  neglected  by  guardians,  failure  in  this  regard  is 
cause  for  dismissal  should  the  question  be  raised. 

If  the  guardianship  cover  the  person  of  the  ward  it  is  the 
duty  of  the  guardian  to  protect,  educate  and  maintain  the  ward. 
The  guardian  has  not  the  same  right  as  a  father  to  the  personal 
services  of  the  infant,  the  guardian's  duty  to  educate  and  main- 
tain being  limited  by  law  to  the  ward's  resources,  and  is  not 
like  the  responsibility  of  a  parent  absolute.  The  guardian  in  con- 
sidering what  are  necessaries  for  the  ward  is  not  to  consider  the 
style  of  life  to  which  the  ward  was  accustomed,  but  rather  the 
income  of  the  ward's  estate  at  the  guardian's  disposal. 

A  guardian  has  no  right  to  convert  the  personal  estate  of  an 
infant  into  real  estate,  or  buy  land  with  the  ward's  money  without 


Ije  DOMESTIC  RELATIONS 

applying  to  the  Court  for  authority.  The  power  resides  in  the 
Court  to  change  the  property  of  infants  from  real  into  personal 
and  from  personal  into  real  whenever  it  appears  to  be  manifestly 
for  the  infant's  benefit. 

It  is  a  duty  of  a  guardian  to  invest  such  funds  as  are  under 
his  control,  and  if  same  be  more  than  sufficient  for  the  purposes 
of  the  trust,  upon  application  to  Court  the  right  may  be  granted 
to  invest  such  funds  in  the  stocks  or  public  debts  of  the  United 
States  or  in  the  public  debt  of  any  State,  or  in  ground  rents,  other 
real  estate  and  real  securities.  A  guardian  cannot  invest  a  ward's 
money  in  the  stocks  and  bonds  of  any  private  corporation  without 
rendering  himself  liable  to  be  surcharged  for  any  loss  occurring. 
A  guardian  is  entitled  to  expenses  and  compensation  covering 
his  services. 

Master  and  Servant. 

The  last  relation  in  domestic  life  which  remains  to  be  exam- 
ined is  that  of  Master  and  Servant,  the  law  regulating  which 
has  been  developed  from  the  time  when  the  vast  majority  of 
human  beings  were  slaves. 

Definition. 

The  term  "master,"  in  its  legal  significance,  means  one  who 
has  the  superior  choice,  control  and  direction  of  the  servant,  and 
whose  will  the  servant  represents  not  merely  in  the  ultimate 
result  of  the  work,  but  in  the  details.  In  other  words,  a  master 
is  one  who  exercises  personal  authority  over  another,  and  that 
other  is  his  servant. 

A  servant,  strictly  speaking,  is  a  person  who  by  contract  or 
operation  of  law  is  for  a  limited  period  subject  to  the  authority  or 
control  of  another  person  in  a  particular  trade,  business  or  occu- 
pation. In  law  it  embraces  all  persons  of  whatever  ranf:  or  posi- 
tion who  are  in  the  employ  and  subject  to  the  direction  or  con- 
trol of  another  in  any  department  of  labor  or  business.  As  a 
matter  of  fact  the  term  "servant"  may  be  used  as  synonymous 
with  employee. 

At  common  law  servants  were  divided  into  three  classes: 
Menial  servants,  apprentices  and  agricultural  laborers  and  agents. 
All  persons  who  were  engaged  in  the  master's  family  in  general 
household  duties,  or  who  performed  menial  services  under  the 
immediate  supervision  or  control  of  the  master,  connected  with 
his  household  and  lodging  therein  oi*  living  within  the  curtilage, 


DOMESTIC  RELATIONS  377 

were  regarded  as  menial  servants,  and  as  such,  although  hired 
for  a  year,  might  be  dismissed  at  any  time  upon  a  month's  notice 
or  payment  of  a  month's  wages.  A  governess  engaged  at  a  yearly 
salary,  although  performing  her  duties  in  the  master's  household, 
did  not  come  within  the  rule  relating  to  menial  servants.  Appren- 
tices are  those  servants  who  are  under  special  contract  to  learn  a 
trade,  during  which  they  are  under  the  control  and  supervision 
of  a  master.  A  third  species  of  servants  are  laborers  who  are 
only  hired  by  the  day  or  week  and  do  not  live  as  part  of  the  family. 
There  is  yet  a  fourth  species  of  servants,  if  they  may  be  so 
called,  being  rather  in  a  superior  capacity,  such  as  stewards,  fac- 
tors and  bailiffs,  whom,  however,  the  law  considers  as  servants 
pro  tent,  with  regard  to  such  of  their  acts  as  affect  their  master's 
or  employer's  property.  In  Pennsylvania,  and  a  majority  of  the 
other  States  of  the  Union,  the  distinction  between  the  various 
classes  of  servants  is  of  little  importance,  and  all  who  are  in  the 
employ  of  another,  in  whatever  capacity,  are  regarded  in  law  as 
servants,  whatever  may  be  the  social  distinction.  Thus  it  has 
been  held  that  a  detective  employed  by  a  railroad  company  is  its 
servant,  and  likewise  a  civil  engineer  employed  by  a  railroad  com- 
pany at  a  fixed  salary  and  subject  in  his  duties  to  the  company's 
orders,  is  a  servant  of  the  company  within  a  statute  declaring 
stockholders  liable  for  debts  to  laborers  and  servants. 

Where  in  a  will  property  is  left  to  the  testator's  servants, 
it  is  well  settled  that  the  word  "servants"  includes  only  those 
that  are  employed  in  and  immediately  around  the  homestead  of 
the  devisor.  It  has  been  held  that  the  term  "servants"  whose 
wages  were  by  a  legislative  act  to  be  paid  out  of  an  intestate's 
estate  in  the  same  rank  with  funeral  expenses,  embraced  those 
only  who  in  common  parlance  were  domestics,  persons  who 
made  part  of  a  man's  family,  and  whose  business  it  is  to  assist 
in  the  economy  of  the  family  or  in  matters  connected  with  it, 
and  that  it  did  not  comprehend  workmen,  employed  at  iron  works 
and  the  like. 

The  law  makes  a  separate  classification  of  public  servants, 
or  those  whose  functions  appertain  to  the  administration  of  gov- 
ernment, but  which  having  no  bearing  on  domestic  relations,  we 
will  dismiss  from  our  consideration  for  the  present. 

Formation  of  Relation. 

The  relation  of  master  and  servant  arises  out  of  a  contract 
between  the  master  on  the  one  hand  and  the  servant  on  the  other. 
Therefore,  to  create  the  relation  both  parties  must  be  capable  of 


378  DOMESTIC  RELATIONS 

contracting  and  neither  be  under  any  legal  disability  which  pre- 
vents mutuality.  An  agreed  understanding  is  not  essential  to 
create  the  relation,  it  may  be  implied  from  circumstances;  as 
where  the  master  induces  the  belief  that  a  certain  person  is  his 
servant  and  thereby  leads  another  to  act  upon  such  belief  to  his 
injury.  The  relation  exists  where  one  person  is  willing  to  work 
for  another  from  day  to  day  and  that  other  desires  the  labor 
and  makes  his  business  arrangements  accordingly. 

A  contract  for  services  made  with  a  minor  is  not  invalid 
simply  because  it  is  not  entered  into  with  the  parent  or  guardian ; 
it  is  only  voidable  at  the  election  of  the  parent  or  guardian. 
Employment  of  a  minor  without  the  parent's  consent  will  in  the 
absence  of  other  evidence  be  presumed  to  be  against  the  parent's 
will;  but  some  Courts  have  refused  to  recognize  this  presump- 
tion. As  a  general  principle  one  may  be  said  to  hire  and  pay  a 
minor  at  his  peril.  If  he  fails  to  ascertain  the  status  of  the  child 
he  must  take  what  consequences  may  arise.  But  where  a  minor 
absconds  from  his  father's  house,  and  enters  the  service  of  one, 
who,  for  his  labor,  furnishes  the  infant  a  reasonable  support,  the 
father  can  only  recover  in  an  action  against  the  employer  the 
value  of  the  services  rendered  less  the  worth  of  the  necessaries 
supplied. 

A  contract  of  employment,  whether  written  or  verbal,  may 
contain  such  terms  and  conditions  as  the  parties  see  fit  to  make, 
provided  they  are  not  illegal  and  do  not  contravene  public  policy. 
Upon  the  consummation  of  the  contract  the  one  is  bound  to 
render  the  service  and,  the  other  to  pay  the  stipulated 
consideration. 

Where  there  is  no  express  contract  between  an  employer 
and  an  employee,  imposing  on  the  latter  a  higher  degree  of  skill, 
care,  diligence  and  attention  to  the  discharge  of  the  duties  of  the 
position  he  contracts  to  fill,  only  the  ordinary  and  reasonable  skill, 
care,  diligence  and  attention  implied  by  law  can  be  required  of 
him.  But  if  the  employee  contracts  for  a  higher  degree  of  skill 
than  the  law  implies,  he  cannot  excuse  himself  from  a  failure 
to  live  up  to  his  contract,  by  merely  showing  that  he  performed 
the  duties  of  his  position  with  the  ordinary  and  reasonable  degree 
of  skill  and  care  required  of  him  by  law. 

A  servant  is  presumed  to  have  been  hired  for  such  a  length 
of  time  as  the  parties  adopt  for  the  estimation  of  wages.  A  hir- 
ing at  a  yearly  rate  is  presumed  to  be  for  one  year ;  a  hiring  at  a 
daily  rate  for  one  day;  a  hiring  by  piecework  for  no  specified 
time.    If  a  written  contract  of  employment  is  entered  into,  little 


DOMESTIC  RELATIONS  379 

difficulty  arises,  but  the  vast  majority  of  contracts  establishing  the 
relation  of  master  and  servant  are  merely  oral,  and  hence  in  deter- 
mining the  rights  of  the  parties  we  are  compelled  to  rely  on  cer- 
tain customs  or  usages  and  legal  presumption.  Where  one  was 
under  monthly  employment,  and  told  his  employer  that  he  wished 
it  more  permanent,  and  an  amount  per  year  was  agreed  upon, 
payable  semi-annually,  a  hiring  for  a  year  may  be  inferred.  A 
hiring  for  personal  services,  for  which  payment  is  made  quar- 
terly, is  not  necessarily  a  hiring  by  the  quarter  or  terminable 
by  a  quarter's  notice. 

If  a  servant  is  hired  for  a  definite  time  and  leaves  the  serv- 
ice before  the  end  of  it,  without  reasonable  cause,  or  is  dis- 
missed for  such  misconduct  as  justifies  it,  he  loses  his  right  to 
wages  for  the  period  he  has  served.  A  servant  so  hired  may 
be  dismissed  by  the  master  before  the  expiration  of  the  term 
either  for  immoral  conduct,  wilful  disobedience  or  habitual 
neglect.  If  the  master  wrongfully  discharges  his  servant,  he  is 
liable  to  an  action  for  damages  and  the  servant  may  recover  for 
loss  of  wages  caused  thereby  during  such  time  as  he  was  com- 
pelled to  remain  idle.  If  a  party  contracts  to  render  his  services 
for  a  specified  time  and  before  the  expiration  thereof  leaves,  no 
action  will  lie  against  his  employer  unless  such  absence  is  caused 
through  sickness  or  inevitable  accident  or  by  his  employer.  In 
Pennsylvania  the  right  of  a  master  to  correct  or  chastise  his 
servants  is  expressly  denied. 

A  general  or  indefinite  hiring  is  presumed  to  be  a  hiring  at 
will.  Employment  by  the  year  or  at  a  yearly  salary  is  not  changed 
to  a  quarterly,  monthly  or  weekly  hiring  by  the  fact  that  the  pay- 
ments are  to  be  made  quarterly,  monthly  or  weekly.  The  Courts 
of  New  Jersey  have  held  that  the  reservation  of  wages  payable 
monthly  or  weekly  will  not  control  the  contract  so  as  to  destroy 
its  entirety  when  the  parties  have  expressly  agreed  for  a  specified 
term,  as  for  a  year.  But  if  the  payment  of  monthly  or  weekly 
wages  is  the  only  circumstance  from  which  a  duration  of  the  con- 
tract is  to  be  inferred,  it  will  be  taken  to  be  hiring  for  a  month 
or  for  a  week. 

If  after  the  expiration  of  a  contract  of  employment  the  serv- 
ice be  continued,  it  will  be  presumed  that  the  same  is  done  upon 
the  same  terms  and  conditions  as  contained  in  the  original 
contract. 

If  a  master  unjustly  discharges  a  servant,  or.  having  agreed 
to  employ  him,  repudiates  the  contract  before  the  commencement 
of  the  services,  it  is  the  duty  of  the  servant  to  use  reasonable 


38o  DOMESTIC  RELATIONS 

care  and  diligence  in  entering  into  other  employment  of  the  same 
kind  and  thus  reduce  the  damages.  It  has  been  held  that  what- 
ever would  be  a  good  reason  for  discharging  a  servant  would  be 
an  equally  good  reason  for  refusing  to  take  him  into  the  employ- 
er's service  after  having  engaged  to  do  so.  It  is,  however,  no 
defense  to  a  contract  to  employ  that  at  a  time  subsequent  to  the 
alleged  contract  the  master  had  employees  enough  to  do  all  his 
business. 

Implied  Contracts  of  Hiring. 

In  default  of  a  contract  of  hiring  a  person  may  recbver  com- 
pensation for  services  where  the  same  were  rendered  under  such 
circumstances  as  to  show  that  he  looks  to  be  paid  as  a  matter 
of  right,  and  such  that  the  person  for  whom  they  were  rendered 
was  bound  to  know  that  he  claimed  compensation  therefor  or  was 
legally  entitled  thereto.  It  is  well  settled  that  if  one  man  labors 
for  another,  or  renders  him  service  in  his  business,  and  that 
other,  knowing  all  the  facts,  stands  by  and  sees  what  is  done, 
and  makes  no  objection,  he  is  estopped  to  deny  that  such  serv- 
ices were  rendered  at  his  request.  Where  one  requests  another 
to  perform  services  for  him,  and  no  provision  is  made  for  com- 
pensation, the  law  implies  a  promise  to  pay  what  they  are  reas- 
onably worth.  The  law  does  not  imply  a  contract  to  pay  for  serv- 
ices between  members  of  a  family,  unless  such  was  the  expecta- 
tion of  the  parties  concerned.  The  family  relation  necessary  to 
rebut  the  presumption  of  a  contract  may  exist  between  grand- 
parents and  grandchildren,  also  between  a  father  or  mother-in-law 
and  son-in-law,  or  uncle  and  niece  by  marriage.  A  stepfather 
who  receives  his  stepchildren  into  his  family  stand  in  loco 
parentis  to  them,  and  in  default  of  an  agreement  no  presumption 
will  arise  that  he  is  under  obligations  to  pay  them  for  services  ren- 
dered by  them.  The  relationship  of  brother  and  sister  does  not 
overcome  the  legal  presumption  that  a  promise  to  pay  is  intended 
when  personal  services  are  rendered.  Neither  can  a  guest  ordi- 
narily recover  for  services  rendered  while  in  the  home  of  another. 
Where  a  woman  of  twenty-five  years  of  age  lives  for  six  years 
with  her  stepmother,  from  whom  her  father  had  been  divorced, 
working  as  a  dressmaker,  and  was  in  the  habit  of  giving  some 
of  her  earnings  to  her  stepmother  and  doing  some  of  the  house- 
hold work,  the  Court  refused  to  allow  her  to  recover  wages  from 
her  stepmother  for  services  rendered. 

Where  by  contract  one  is  employed  by  another  to  do  work 


DOMESTIC  RELATIONS  381 

by  the  day  or  month  or  year,  and  nothing  is  said  as  to  the  time 
of  payment  for  the  services  to  be  rendered,  his  wages  are  due 
and  may  be  demanded  at  the  close  of  each  day,  month  or  year, 
as  the  case  may  be.  If  a  merchant  employs  a  clerk,  and,  pending 
his  term  of  service  the  merchant  forms  a  partnership  in  the  same 
character  of  business,  and  the  clerk  enters  the  service  of  the  firm, 
the  contract  with  the  original  employer  as  an  individual  is  at  an 
end.  Contracts  of  employment  by  the  firm  have  been  held  to  be 
conditional  on  the  firm  not  being  dissolved  by  death,  and  in  case 
of  the  death  of  a  partner  the  survivor  is  not  obliged  to  carry  out 
the  contract.  But  the  fact  that  employers  who  have  agreed  to 
hire  an  employee  for  a  year  and  pay  him  a  certain  salary  become 
insolvent  and  are  obliged  to  cease  business,  and  notify  the 
employee  that  his  services  will  not  be  required  thereafter,  does 
not  absolve  them  from  their  obligation  to  pay  according  to  the 
terms  of  the  agreement. 

In  case  a  master  notifies  his  servant  that  he  will  thereafter 
pay  him  less,  and  the  servant  continues  work  without  notifying 
his  master  that  he  will  claim  more,  a  new  arrangement  is  made 
which  becomes  binding  on  both. 

Statutory  Regulations. 

The  State  may,  in  the  exercise  of  its  police  powers,  impose 
such  regulations  and  restrictions  upon  the  relation  of  master  and 
servant  as  are  conducive  to  the  public  welfare,  health,  safety  or 
morals.  For  example,  statutes  have  been  passed  prohibiting  the 
coercing  of  an  employee  by  a  threat  to  discharge  him  because  of 
his  connection  with  a  labor  organization.  Statutes  establishing 
an  eight-hour  labor  day  for  certain  industries  have  also  been  held 
constitutional. 

Termination  of  Contract. 

The  authorities  are  somewhat  conflicting  as  to  the  rule  to 
be  applied  when  the  contract  provides  for  the  satisfactory  per- 
formance of  the  employee's  duties.  Some  of  the  cases  hold  that 
the  employer  is  the  sole  judge  of  what  is  satisfactory  or  not. 
Where  a  contract  of  employment  provides  for  its  tennination 
upon  giving  a  stipulated  notice,  such  condition  must  be  complied 
with,  and  a  discharge  or  abandonment  without  the  required 
notice  is  unlawful,  A  contract  of  employment  may  be  termin- 
ated by  agreement  of  the  parties  or  by  their  consent,  either 
express  or  implied. 


382  DOMESTIC  RELATIONS 

A  rule  requiring  two  weeks'  notice  of  intention  to  quit  serv- 
ices on  pain  of  forfeiture  of  wages  due  has  been  held  to  be 
reasonable,  and,  if  assented  to  by  the  employee,  becomes  part  of 
the  contract  of  employment. 

Unless  the  contract  of  employment  is  terminated  at  will,  an 
employer  can  arbitrarily  discharge  his  employee,  but  only  for 
good  cause.  Any  act  of  a  servant  which  injures  or  has  a  tendency 
to  injure  his  master's  business  or  reputation  will  justify  his  dis- 
missal. That  his  services  are  no  longer  needed  will  not  justify 
the  discharge  of  a  servant,  nor  can  a  master  discharge  for  trivial 
reasons.  A  discharge  for  refusal  to  work  on  Sunday  is  unjusti- 
fiable and  gives  the  employee  a  right  of  action.  Absence  from 
place  of  employment  without  leave,  even  for  a  day,  has  been  held 
to  justify  a  discharge.  Inaccuracies  and  discrepancies  in  the 
books  of  a  merchant  are  sufficient  cause  for  the  discharge  of  a 
bookkeeper.  A  servant  is  bound  to  use  due  care,  and  habitual 
negligence  in  the  discharge  of  his  duties  or  any  neglect  which 
may  or  does  affect  his  master  injuriously  will  warrant  his  dis- 
missal. Insubordination,  intoxication  or  intemperance  have  been 
held  sufficient  to  warrant  a  discharge  of  a  servant.  Absence  on 
account  of  illness  is  no  excuse  on  the  part  of  an  employee,  and  an 
employer  may  discharge  on  this  ground. 

A  master  may  set  off  against  wages  due  a  servant  damages 
occasioned  by  the  servant's  negligence.  When  a  servant  whose 
wages  are  due  and  payable  periodically  refuses  to  serve  in  the 
manner  contracted  for,  or  is  rightly  discharged  at  any  intervening 
period  between  the  days  when  his  wages  are  due,  he  can  recover 
nothing  for  that  portion  of  time  during  which  he  has  served 
since  the  last  periodical  payment. 

There  is  no  obligation  imposed  by  law  on  a  master  to  give  a 
testimonial  of  character,  or  letter  of  recommendation,  upon  the 
termination  of  a  contract  of  employment.  Where  there  is  a  cus- 
tom among  railroad  companies  to  keep  a  record  of  the  causes  for 
which  employees  have  been  discharged,  and  for  one  company  not 
to  employ  persons  discharged  by  another  for  certain  causes,  a 
company  is  liable  to  a  discharged  employee  for  making  a  false 
entry  on  its  records  as  to  the  cause  of  his  discharge,  which  has 
prevented  him  from  obtaining  employment. 

Upon  his  discharge  a  servant  must  leave  peaceably,  regard- 
less of  whether  the  discharge  was  rightful.  If  the  servant  fails 
to  leave  peaceably,  or  after  doing  so  returns,  he  becomes  a  tres- 
passer, and  may  be  ejected  by  his  master,  even  though  his  wages 
have  not  been  paid  in  full. 


DOMESTIC  RELATIONS  383 

Having  considered  how  the  relation  of  master  and  servant 
may  be  created  and  terminated,  we  will  next  discuss  the  important 
legal  consequences  which  result  from  his  association. 

Rights  and  Liabilities. 

Having  indicated  the  manner  in  which  the  relation  of  master 
and  servant  may  be  formed,  we  will  next  direct  our  attention  to  an 
inquiry  concerning  the  mutual  rights  and  liabilities  incident 
thereto. 

The  master  is  bound  by  the  act  of  his  servant,  either  in 
respect  to  contracts  or  injuries,  when  the  act  is  done  by  authority 
of  the  master.  If  the  servant  does  an  injury  fraudulently,  while 
in  the  immediate  employment  of  the  master,  the  master  as  well 
as  the  servant  has  been  held  liable  in  damages,  and  the  master 
is  also  said  to  be  liable  if  the  injury  proceeds  from  the  negligence 
or  want  of  skill  in  the  servant,  for  it  is  the  duty  of  the  master 
to  employ  servants  who  are  honest,  skilful  and  careful. 

In  order  to  establish  the  liability  of  an  employer  for  an  injury 
caused  by  the  carelessness  or  negligence  of  a  servant,  it  is  not 
enough  to  show  that  the  latter  was  at  the  time  acting  under  an 
employment  by  the  former ;  it  must  be  shown  in  addition  that  the 
employment  created  the  relation  of  master  and  servant.  A  con- 
tractor for  a  job  by  accepting  and  paying  for  work  done  thereon 
by  a  mechanic  without  his  prior  order  or  authority  does  not 
render  himself  liable  for  injuries  caused  to  a  third  person  by  a 
negligent  act  committed  by  the  mechanic  while  doing  the  work, 
not  a  part  or  result  of  the  work  itself,  such  as  carelessly  letting 
fall  a  brick. 

The  relation  of  master  and  servant  exists  where  the  employer 
selects  the  workman  and  may  remove  or  discharge  him  for  mis- 
conduct, and  may  order  not  only  what  work  shall  be  done,  but  the 
mode  and  manner  of  performance.  The  power  to  control  the 
alleged  servant  is  the  test  of  the  existence  of  the  relationship 
and  the  basis  of  the  employer's  liability  for  injuries  to  third  par- 
ties. It  has  been  held  that  where  the  person  employed  is  in  the 
exercise  of  an  independent  and  distinct  employment,  and  not 
under  the  immediate  control,  direction  or  supervision  of  the 
employer,  the  latter  is  not  responsible  for  the  acts  of  the  former, 
and  for  this  reason  an  independent  contractor,  as  this  term  is 
understood  in  law,  is  not  a  servant  so  as  to  make  a  master  liable 
for  his  acts.  Railway  postal  clerks  arc  not  the  servants  of  the 
railway  company,  nor  is  an  inmate  of  a  hospital  the  servant  of 


384  DOMESTIC  RELATIONS 

the  superintendent  thereof.  It  is  interesting  to  note  that  the  law 
does  not  hold  a  master  Hable  where  the  negligence  is  that  of  a 
substitute  engaged  by  a  servant  without  any  authority  to  dele- 
gate his  master's  power  as  to  the  particular  work  in  charge  of 
the  servant. 

The  law  is  well  settled  that  corporations  are  liable  for  the 
acts  of  their  servants  while  engaged  in  the  business  of  their 
employment  to  the  same  extent  and  in  the  same  manner  that 
individuals  are  liable  under  similar  circumstances. 

Special  Employment. 

Suppose  a  livery-stable  keeper  furnished  a  driver  and  team 
to  a  customer  for  a  specified  time  or  for  a  particular  purpose.  If 
the  driver  is  placed  under  the  exclusive  control  of  the  hirer,  the 
latter  is  liable  in  case  of  accident,  and  not  the  master  of  the  driver 
(the  livery-stable  keeper).  From  this  illustration  we  may  lay 
down  the  following  rule,  viz.,  A  person  who  avails  himself  of 
the  use,  temporarily,  of  the  services  of  a  servant  regularly 
employed  by  another  person,  is  liable  as  master  for  the  act  of  such 
servant  during  the  temporary  service.  In  such  cases  the  test 
of  liability  is  whether  in  the  particular  service  the  servant  is 
engaged  to  perform  he  continues  under  the  control  of  his  regu- 
lar master  or  becomes  subject  to  that  of  the  person  to  whom  he  is 
hired.  Thus,  where  a  company  selling  fireworks  furnished 
employees  to  fire  them  oflf,  but  such  employees  are  under  the  con- 
trol of  the  purchasers,  the  company  is  not  liable  for  an  injury 
to  a  bystander  caused  by  the  negligence  of  such  employee.  If, 
on  the  other  hand,  the^purchaser  did  nothing  in  connection  with 
fireworks  more  than  to  locate  the  stand  where  the  display  took 
place,  the  servants  being  sent  by  the  seller  directing  the  display 
and  the  seller  paying  their  expenses,  such  servants  in  discharging 
the  fireworks  are  the  servants  of  the  seller,  who  becomes  liable  for 
their  negligence. 

Limitation  on  Master's  Liability. 

A  master  is,  of  course,  only  liable  for  the  acts  of  his  serv- 
ants, provided  such  acts  are  within  the  legitimate  scope  of  the 
servant's  employment.  A  master  is  not  liable  for  a  servant's 
acts  which  are  not  within  the  scope  of  his  employment,  although 
such  acts  be  intended  to  promote  the  master's  interests.  The  test 
of  liability  is  not  limited  to  the  character  of  the  act,  nor  whether 
it  was  done  during  the  existence  of  the  servant's  employment,  but 


DOMESTIC  RELATIONS  385 

whether  the  injury  complained  of  was  committed  by  the  authority 
of  the  master  expressly  conferred  or  fairly  implied  in  the  nature 
of  the  employment  and  the  duties  incident  to  it. 

This  limitation  of  a  master's  liability  to  acts  within  the  line 
of  the  servant's  duties  has  certain  important  exceptions.  In  the 
first  place,  railroad  companies  have  been  held  responsible  for 
assaults  committed  by  their  servants  upon  passengers,  upon  the 
ground  that  they  undertook  an  additional  duty  involving  the 
utmost  care  and  good  faith,  the  master's  extra  liability  being 
based  on  the  ground  of  public  policy,  it  being  more  reasonable  that 
the  master  who  has  placed  his  servant  in  a  position  of  trust  than 
the  irresponsible  stranger  should  suffer.  Upon  the  same  gfrounds 
it  has  been  held  that  a  shopkeeper  is  liable  for  the  acts  of  his  serv- 
ants toward  a  customer  in  the  store,  even  where  such  acts  are 
not  committed  within  the  strict  line  of  employment. 

Where  an  injury  occurs  to  a  third  person  through  the 
improper  execution  by  a  servant  of  a  lawful  act,  the  master  alone 
is  liable  therefor. 

It  was  formerly  the  law  that  a  master  was  not  liable  for  the 
wilful  and  malicious  acts  of  a  servant,  as  distinguished  from  negli- 
gent acts,  but  the  law  is  perfectly  settled  to-day  to  the  effect  that 
the  master  is  liable  for  the  wilful  and  malicious  acts  of  his  serv- 
ants where  they  are  done  in  the  course  of  his  employment  and 
within  its  scope.  However,  if  a  servant  does  a  malicious  act  while 
engaged  in  his  master's  work,  but  outside  of  his  employment,  to 
gratify  some  personal  animosity,  the  master  is  not  liable.  The 
owner  of  a  race  horse  is  liable  to  the  owner  of  a  competing  horse 
where  his  rider  fouls  or  intentionally  runs  against  him. 

A  master,  as  a  general  rule,  is  not  liable  for  the  criminal  acts 
of  a  servant,  not  authorized  or  sanctioned  by  him,  such  as  larceny, 
counterfeiting,  etc.  The  Courts  have  held  that  where  a  watch- 
man is  employed  to  protect  a  building  from  burglars  and  himself 
enters  and  commits  larceny  therein,  the  employer  of  the  watchman 
is  liable  to  the  owner  of  the  building,  although  the  act  was  outside 
the  scope  of  the  servant's  employment. 

If  a  servant  step  aside  from  his  master's  business  for  how- 
ever short  a  time,  to  do  an  act  not  connected  with  such  business, 
the  relation  of  master  and  servant  is  for  the  time  suspended,  and 
an  act  of  the  servant  during  such  interval  is  his  own.  Thus,  it  has 
been  held  that  where  proper  care  has  been  observed  in  selecting 
honest  and  faithful  officers,  a  bank  is  not  responsible  for  a  loss 
resulting  from  carelessness  not  in  the  course  of  the  officer's 
business. 

26 


386  DOMESTIC  RELATIONS 

Where  a  person  or  corporation  is  compelled  by  law  to  employ 
an  individual  in  a  given  matter,  no  liability  will  attach  for  the 
negligent  act  of  such  servant.  For  example,  if  a  municipal  cor- 
poration is  obliged  to  let  a  contract  to  the  lowest  bidder,  it  would 
not  be  liable  for  the  negligent  acts  of  such. 

The  broad  rule  that  a  master  is  liable  for  all  the  acts  of 
his  servant  within  the  scope  of  his  employment,  is  equally  as 
applicable  in  the  case  of  contract  obligations  as  in  the  case  of  torts, 
i.  e.,  negligence,  etc.  But  the  power  of  a  servant  to  bind  the 
master  on  a  contract  is  included  more  properly  in  the  subject  of 
agency,  which  has  already  been  discussed. 

The  terms  "course  of  employment"  and  "scope  of  the  author- 
ity" are  not  susceptible  of  accurate  definition.  An  act  is  within 
the  scope  of  the  servant's  employment  where  necessary  to  accom- 
plish the  purpose  of  his  employment  and  intended  for  that  pur- 
pose, although  in  excess  of  the  powers  actually  conferred  on  the 
servant  by  the  master.  The  purpose  of  the  act  rather  than  its 
method  of  performance  is  the  test  of  the  scope  of  employment. 
Where  a  servant  employed  to  deliver  milk  to  a  factory  mixed  it 
with  filthy  water  to  gratify  his  malice  toward  his  employer,  and 
then  delivered  the  milk,  it  was  held  that  the  tort  was  committed 
within  the  scope  of  his  employment. 

It  may  appear  contradictory  to  state  that  a  particular  act 
of  a  servant  may  be  within  the  scope  of  his  employment,  although 
it  violates  the  express  instructions  or  orders  of  the  master,  but 
such  is  nevertheless  the  case.  For  instance,  where  a  master  in- 
structed his  servant  to  go  to  a  certain  place  and  kill  a  beef,  and 
the  servant  went  and  finding  no  animal  there  but  a  bull  belonging 
to  another  killed  and  dressed  that,  the  master  was  held  liable. 

A  master  is  ordinarily  liable  for  the  trespasses  of  his  serv- 
ants, but  not  if  the  trespass  be  criminal  and  felonious.  It  is  a 
well-settled  principle  of  law  that  where  a  wilful  injury  is  done  by 
an  agent,  by  the  command  or  authority  of  the  principal,  both  are, 
in  law,  principal  trespassers,  and  therefore  jointly  liable.  In  other 
words,  both  the  master  who  commands  the  doing  and  the  serv- 
ant who  commits  an  act  of  trespass  may  be  made  responsible  as 
principals,  and  may  be  sued  jointly  or  severally.  Again,  the 
wrongful  acts  of  a  servant  may  render  him  personally  and  alone 
liable  to  a  third  person. 

No  action  can  be  maintained  against  a  servant  unless  he  can 
be  considered  a  wrongdoer,  and  where  the  servant  obeys  the 
commands  of  his  master  without  negligence  on  his  part,  he  is  not 
liable  for  injuries  to  third  persons  unless  he  knew  or  had  reason 


DOMESTIC  RELATIONS  387 

to  believe  that  the  act  or  acts  were  hazardous  and  liable  to  occa- 
sion injury  to  some  third  person. 

The  weight  of  authority  holds  that  a  servant  is  liable  to 
his  master  for  damages  which  the  master  has  been  compelled  to 
pay  to  third  persons  because  of  the  negligent  or  other  wrongful 
act  of  the  servant,  where  the  master  is  not  himself  in  fault.  He 
is  also  liable  for  the  amount  voluntarily  paid  by  the  master  to 
the  third  person  because  of  the  acts  of  the  servant,  provided  it  is 
not  in  excess  of  the  sum  for  which  the  master  was  legally  liable. 

Duties  of  Master  Toward  Servant. 

When  a  servant  enters  into  the  employ  of  another  he  assumes 
all  the  risks  ordinarily  incident  to  the  business.  He  is  presumed 
to  have  contracted  with  reference  to  all  the  hazards  and  risks 
ordinarily  incident  to  the  employment.  Consequently  he  cannot 
recover  for  injuries  resulting  to  him  therefrom.  In  performing 
the  duties  of  his  position,  the  servant  is  bound  to  take  notice  of 
the  ordinary  operation  of  familiar  natural  laws  and  to  govern 
himself  accordingly.  If  he  fails  to  do  so  the  risk  is  his  own.  He 
is  bound  to  use  his  eyes  to  see  that  which  is  open  and  apparent 
to  any  person  using  his  eyes,  and  if  he  fails  to  do  so  he  cannot 
charge  the  consequences  upon  the  master.  A  servant  does  not, 
however,  assume  the  risk  of  any  dangers  arising  from  unsafe  or 
defective  methods,  surroundings,  machinery,  or  other  instrumen- 
talities unless  he  has  or  may  be  presumed  to  have  knowledge  or 
notice  thereof. 

The  rule  of  law  regulating  the  obligation  between  master  and 
servant  is  that  the  former  is  liable  for  all  accidents  occurring  in 
the  course  of  the  employment,  which  are  not  induced  by  the  care- 
lessness or  improper  conduct  of  the  employee.  In  other  words, 
the  master  is  bound  to  use  reasonable  care  and  diligence  to  pre- 
vent accident  or  injury,  and  if  he  does  not  he  will  be  responsible 
for  the  damages,  unless  the  servant  assumed  the  risk  or  con- 
tributed to  the  injury  through  his  own  negligence.  The  master 
is  only  required  to  exercise  such  ordinary  and  reasonable  care 
and  protection  for  the  safety  of  his  servants  as  the  nature  and 
dangers  of  the  business  demand. 

Persons  employing  minors  must  anticipate  the  ordinary  be- 
havior of  children,  must  take  notice  of  their  lack  of  judgment, 
and  must  exercise  greater  care  toward  them  than  is  required  by 
law  to  be  exercised  toward  adults.  That  is  to  say,  where  a  minor 
is  employed  in  a  business,  the  danger  of  which  he  is  unable  by 
reason  of  his  immature  judgment  to  comprehend,  and  is  injured, 


388  DOMESTIC  RELATIONS 

the  master  is  liable.  That  a  minor  answers  falsely  as  to  his  age, 
and  secures  employment  by  so  doing,  in  violation  of  a  known  rule 
against  employing  minors,  does  not  make  him  a  trespasser  or 
deprive  him  of  his  right  to  protection  as  an  employee,  when 
actually  engaged  in  his  employer's  service. 

A  contract  between  master  and  servant  before  the  happening 
of  an  injury,  whereby  the  servant,  in  consideration  of  the  employ- 
ment, agrees  to  release  and  discharge  his  master  from  liability 
on  account  of  injuries  caused  by  the  negligence  of  his  master  or 
the  latter's  servants,  is  void  as  against  public  policy.  If,  however, 
an  employee  agrees,  upon  becoming  a  member  of  his  employer's 
relief  association,  that  the  acceptance  of  relief  therefrom  on  being 
injured  shall  bar  his  right  of  action  against  his  employer  for  the 
injury,  such  contract  is  not  void  as  against  public  policy.  The 
acceptance  of  benefits  under  such  a  contract  bars  an  action  for 
damages  on  account  of  the  injury. 

The  master  must  furnish  the  servant  with  a  safe  place  within 
which  to  work,  safe  tools  and  appliances  with  which  to  work, 
must  give  instructions  regarding  work,  the  danger  of  which  is  not 
apparent,  and  must  employ  competent  fellow-workmen  or 
servants. 

A  servant  not  only  assumes  the  risks  that  existed  at  the  begin- 
ning of  his  employment,  but  also  those  arising  in  the  course  of  his 
employment.  It  is  sufficient  if  the  master  furnishes  his  servant 
with  reasonably  safe  and  suitable  appliances  and  places  in  which 
to  work,  the  law  not  requiring  him  to  furnish  the  most  expensive, 
newest  and  best  machinery.  The  master's  liability  is  met  when 
he  furnishes  such  as  are  reasonably  safe  and  suitable  for  the 
purpose. 

If  a  servant  of  full  age  and  ordinary  intelligence  upon  being 
required  by  his  master  to  perform  other  duties  more  dangerous 
and  complicated  than  those  embraced  in  his  original  hiring, 
undertakes  the  same  knowing  their  dangerous  character,  although 
unwillingly  and  from  fear  of  losing  his  employment,  and  is 
injured,  he  cannot  maintain  an  action  against  the  master  for  the 
injury. 

The  measure  of  the  master's  duty  is  reasonable  care,  and  this 
necessarily  has  relation  to  the  parties,  the  business  in  which  they 
are  engaged,  and  varies  according  to  the  exigencies  which  require 
vigilance  and  attention,  conforming  in  amount  and  degree  to  the 
circumstances  under  which  it  is  to  be  exerted.  It  is  not  necessary 
in  order  to  entitle  a  servant  to  recover  for  injuries  received  from 
defective  machinery,  that  he  should  show  that  the  master  had 


DOMESTIC  RELATIONS  389 

actual  knowledge  of  such  defects.  It  is  enough  if  he  shows  that 
he  ought  to  have  known  of  them,  and  might  have  known  by  the 
exercise  of  reasonable  care  on  his  part  in  examining  and 
inspecting  the  appliances. 

The  measure  of  care  imposed  on  the  master  for  the  safety  of 
his  servant  in  the  use  of  dynamite  or  other  explosives  is  that 
ordinary  care  which  reasonable  and  prudent  men  would  exercise 
under  like  circumstances,  and  where  a  master  furnishes  an 
explosive  known  to  him  to  be  dangerous  and  unsafe  for  the  use 
to  which  it  is  to  be  put,  or  which  has  never  been  used  for  the 
purpose,  and  is  in  fact  unfit  and  unsafe  therefor,  he  is  guilty  of 
negligence.  Likewise,  where  a  servant  is  injured  by  an  explosion 
which  is  the  necessary  result  of  improper  appliances  the  master 
is  liable. 

Where  the  master  knows  or  should  know  that  an  animal  used 
by  him  is  vicious,  or  that  his  harness  is  not  reasonably  safe,  he  is 
liable  for  injuries  to  his  servant  as  a  result  thereof. 

We  have  already  called  attention  to  the  fact  that  a  master  is 
required  to  provide  his  servant  with  a  safe  place  in  which  to 
work.  It  should  be  borne  in  mind,  however,  that  this  rule  does 
not  apply  to  a  case  where  servants  are  creating  a  place  of  work 
which  is  constantly  changing  in  character  by  their  labor,  when  it 
only  becomes  dangerous  by  the  carelessness  or  negligence  of  the 
workmen  when  the  dangers  which  arise  are  only  short  lived,  or 
when,  by  the  negligence  of  the  workmen,  the  place  is  rendered 
unsafe  without  the  master's  fault  or  knowledge. 

Where  the  work  is  the  construction  of  a  new  building  the 
master  is  not  under  the  same  duty  as  he  would  be  if  the  building 
were  complete  and  fitted  for  use,  and  he  cannot  be  held  to  the 
same  degree  of  care  with  respect  to  temporary  floors,  or  other 
structures,  mainly  constructed  by  the  workmen  for  their  own  use, 
for  purposes  which  are  constantly  changing  as  the  work  pro- 
gresses and  which  uses  in  the  nature  of  things  cannot  in  all 
cases  be  foreseen  by  the  master.  If  a  servant  chooses  his  own 
position  on  a  bridge  in  course  of  construction  while  a  portion  of 
the  work  is  going  on,  it  is  not  the  master's  duty  to  have  a  repre- 
sentative present  to  see  that  the  place  is  safe.  The  law  also  holds 
that  it  is  no  part  of  the  duty  of  a  master  to  his  servant,  employed 
in  a  building  properly  constructed  for  the  ordinary  business 
carried  on  within  it,  to  provide  a  means  from  fire,  in  the  absence 
of  statutory  requirement  that  a  fire-escape  be  erected.  Where 
scaffolds,  platforms,  staging  and  the  like  are  provided  servants  in 
connection  with  their  work,  the  master  must  see  that  same  are 
safe;  but  if  such  structures  are  made  by  the   servants   from 


390  DOMESTIC  RELATIONS 

materials  furnished  by  the  master,  who  has  no  direction  or  control 
over  their  construction,  he  is  not  liable  for  injuries  sustained  by 
one  of  the  workmen  by  reason  of  defects  therein. 

In  the  case  of  elevators  and  like  constructions,  the  duty  is 
imposed  on  the  master  to  see  that  same  are  safe  and  suitable  for 
the  purposes  for  which  they  are  intended;  the  master's  duty  is 
performed  in  this  regard  when  he  purchases  his  elevator  from 
reliable  and  competent  manufacturers,  has  it  placed  in  working 
order  by  them  and  has  it  regularly  inspected  by  experts.  Even 
though  an  elevator  be  primarily  intended  for  a  freight  elevator,  if 
in  the  course  of  their  employment  servants  are  authorized  and 
directed  to  use  same  as  a  means  of  personal  transportation,  the 
employer  or  master  is  liable  for  any  accidents  happening  from 
defects  in  the  elevator  or  operation  thereof,  which  proper  care 
and  caution  could  have  prevented. 

The  duty  of  a  railroad  company  to  its  employees  is  no  higher 
than  that  required  of  other  masters.  It  has  been  held  that  where 
an  employee  of  a  railroad  company  is  injured  by  the  fall  of  coal 
from  a  locomotive  tender  which  has  been  improperly  overloaded 
the  company  is  liable.  A  railroad  company  is  bound  to  exercise 
reasonable  care  and  diligence  to  prevent  obstruction  or  erections 
on,  over  or  near  its  tracks,  which  are  a  source  of  danger  to  its 
servants,  and  will  be  liable  for  injuries  occasioned  by  its  neglect  of 
duty.  Thus  it  has  been  held  that  if  a  railroad  company  knowingly 
maintains  or  permits  a  bridge  over  its  tracks  so  low  that  brake- 
men  cannot  perform  their  duty  on  top  of  the  cars  with  reason- 
able safety,  it  is  liable  to  a  brakeman  who,  having  no  knowledge 
of  the  dangerous  character  of  the  bridge,  is  struck  by  it  and 
injured  in  the  performance  of  his  duty. 

Not  only  is  it  the  duty  of  a  master  to  use  ordinary  care  to 
furnish  his  employees  with  a  reasonably  safe  place  to  work,  and 
with  reasonably  safe  machinery  and  appliances,  but  he  must  also 
by  inspection  from  time  to  time  and  by  the  use  of  ordinary  care 
and  diligence  in  making  repairs  keep  them  in  reasonably  safe 
condition.  The  rule  is,  nevertheless,  well  settled  that  the  mere 
failure  to  inspect  is  not  negligence  where  an  inspection  would  only 
show  what  was  already  known  to  the  servant.  Where,  however,  a 
careful  inspection  would  not  disclose  a  defect,  the  master  is 
absolved  from  liability  for  not  doing  so.  In  many  States  statutes 
have  been  passed  providing  for  official  inspection  of  places  of 
work,  machinery  and  appliances.  Such  an  official  inspection  does 
not,  however,  relieve  a  master  of  his  duty.  For  instance,  the 
certificate  of  a  factory  inspector  approving  a  fire-escape  does  not 


DOMESTIC  RELATIONS  391 

relieve  the  employer  from  liability  for  negligence  in  not  provid- 
ing a  safe  landing  place.  A  master  is  not  liable  for  injuries 
resulting  to  a  servant  by  reason  of  latent  defects  of  which  he  was 
ignorant  and  which  could  not  be  discovered  in  the  exercise  of 
reasonable  care  and  diligence.  The  Courts  have  ruled,  however, 
that  a  master  must  keep  pace  with  scientific  development  as  it 
affects  his  business,  and  keep  himself  and  foreman  informed  of 
latent  danger,  even  though  it  be  scientific  information,  if  it  be 
readily  attainable.  Observation  of  and  compliance  with  these 
simple  legal  requirements  would  prevent  countless  injuries  and 
unnecessary  litigation. 

Contributory  Negligence. 

In  connection  with  the  master's  duty  toward  his  employee,  as 
above  outlined,  it  is  appropriate  to  discuss  briefly  the  doctrine 
of  contributory  negligence  on  the  part  of  the  employee. 

It  is  the  rule  of  both  the  civil  and  common  law  that  one  who 
by  his  negligence  (legally  defined  as  want  of  proper  care  under 
the  circumstances)  has  brought  an  injury  upon  himself  cannot 
recover  damages  for  it.  The  question  is  whether  plaintiff  so  far 
contributed  to  the  misfortune  by  his  own  negligence  or  want  of 
ordinary  care,  that,  but  therefor,  the  misfortune  would  not  have 
happened.  If  so,  there  can  be  no  recovery.  Contributory  negli- 
gence on  the  part  of  a  minor  will  defeat  his  right  to  recover  for 
an  injury  as  in  the  case  of  an  adult.  The  law,  however,  regards 
a  minor  under  the  age  of  seven  years  as  incapable  of  contributory 
negligence.  Where  both  the  master  and  the  servant  have  equal 
knowledge  of  the  danger  of  the  service  and  of  the  means  of  avoid- 
ing it,  and  the  servant  while  engaged  in  the  performance  of  the 
work  he  is  set  to  do,  is  injured  by  reason  of  his  own  inattention 
and  negligence,  the  master  is  not  liable.  An  engineer  injured 
while  running  behind  schedule  time  at  a  speed  greater  than  was 
allowable,  but  which  was,  according  to  the  practice  of  the  com- 
pany, excusable  in  belated  trains,  is  not  guilty  of  contributory  neg- 
ligence and  may  recover  damages  for  his  injury.  It  has  been 
held  by  the  Supreme  Court  of  Pennsylvania  that  where  a  con- 
ductor went  forward  to  give  the  engineer  warning  although 
the  rule  required  him  to  remain  in  the  middle  of  the  train,  that 
the  error  was  a  reasonable  one  and  that  he  was  not  guilty  of 
contributory  negligence.  Projecting  the  person  beyond  the  .side 
of  a  car  constitutes  contributory  negligence.    Getting  on  or  off 


392  DOMESTIC  RELATIONS 

a  moving  conveyance  is  contributory  negligence,  as  is  also  the 
failure  to  "stop,  look  and  listen"  before  passing  a  grade  crossing. 

Where  an  employee  in  the  course  of  his  employment  finds 
himself  in  imminent  peril  through  the  negligence  of  his  employer, 
and  in  the  terror  of  the  moment  adopts  an  unsafe  course  expos- 
ing him  to  a  greater  peril,  such  action  on  his  part  is  not 
attributed  to  negligence  and  will  not  prevent  a  recovery. 

In  the  case  of  a  skilled  workman  operating  a  dangerous  tool, 
a  high  degree  of  care  is  required  on  his  part.  Such  person  is 
bound  to  exercise  his  thinking  faculties  and  give  careful  attention, 
and  if  he  fails  to  do  so  and  is  injured  in  consequence  he  is  guilty 
of  contributory  negligence  which  will  prevent  his  recovery  for 
such  injuries.  Where  a  servant  is  killed  while  on  duty,  the  law 
will  presume  that  he  exercised  due  care,  and  the  master,  to  avoid 
liability,  must  clearly  establish  contributory  negligence  on  the 
part  of  the  servant. 

Where  a  servant  continues  working  with  knowledge  of  dan- 
ger, which  an  ordinary  prudent  man  would  refuse  to  subject  him- 
self to,  he  is  guilty  of  contributory  negligence,  but  where  a  serv- 
ant notifies  his  master  of  defects  in  the  tools,  machinery,  appli- 
ances or  ways  and  places  for  work  and  the  master  promises  to 
remove  or  repair  them,  a  servant  is  not  guilty  of  contributory 
negligence  by  continuing  at  work  for  a  reasonable  time. 

'Tellow-Servants." 

Where  several  persons  are  employed  in  the  conduct  of  one 
common  enterprise  or  undertaking,  and  the  safety  of  each 
depends  to  a  great  extent  on  the  care  and  skill  with  which  each 
other  shall  perform  his  appropriate  duty,  each  is  generally  an 
observer  of  the  conduct  of  the  others,  can  give  notice  of  any  mis- 
conduct, incapacity  or  neglect  of  duty,  and  leave  the  service  if 
the  common  employer  will  not  take  such  precautions  and  employ 
such  agents  as  the  safety  of  all  may  require.  The  negligence  x)f  a 
fellow-employee  is  one  of  the  risks  incident  to  the  employment, 
and  is  assumed  by  every  servant  who  undertakes  work  in 
association  with  others. 

A  rule  of  law  has  consequently  been  universally  adopted  by 
the  Courts  of  England  and  America  to  the  effect  that  a  master 
is  not  liable  for  injuries  to  a  servant  caused  by  the  negligence 
of  a  fellow-servant  engaged  in  the  same  general  business,  where 
the  master  has  furnished  proper  means  for  carrying  on  the  work 
and  has  used  due  care  in  the  selection  of  servants.    It  is  important 


DOMESTIC  RELATIONS  393 

to  determine  who  are  fellow-servants  within  the  meaning  of  the 
rule  stated.  Speaking  broadly,  all  who  serve  the  same  master, 
work  under  the  same  control,  deriving  authority  and  compen- 
sation from  the  same  source,  and  are  engaged  in  the  same  general 
business,  although  it  may  be  in  different  grades  or  departments 
of  it,  are  fellow-servants,  each  assuming  the  risk  of  the  other's 
negligence;  to  constitute  fellow-servants,  the  employees  need  not 
be  at  the  same  time  engaged  in  the  same  particular  work.  It  is 
sufficient  in  the  language  of  the  Supreme  Court  of  Pennsylvania, 
"If  they  are  in  the  employment  of  the  same  master,  engaged  in 
the  same  common  work  and  performing  duties  and  services  for 
the  same  general  purpose."  The  captain  of  a  steamboat  who  is  a 
part  owner  thereof  is  not  the  fellow-servant  of  a  deckhand.  A 
shipper  of  live  stock  by  accepting  a  pass  permitting  him  to  accom- 
pany the  stock  and  attending  it  in  transit,  does  not  become  the 
servant  of  the  carrier  and  is  not  within  the  fellow-servant  rule. 
Servants  of  separate  masters,  although  engaged  in  a  common 
undertaking,  are  not  fellow-servants.  A  person  who  is  tem- 
porarily working  for  one  while  in  the  general  service  of  another 
must  be  treated  as  to  that  particular  employment  as  the  servant 
of  the  person  thus  employing  him  and  the  person  who  has  the 
right  to  direct  and  control  his  conduct  in  that  particular  business 
must  likewise  be  regarded  as  his  master,  for  the  existence  of  a 
general  relation  of  master  and  servant  does  not  exclude  a  like 
relation  between  the  servant  and  a  third  party  to  the  extent  of 
the  special  service  in  which  the  servant  may  be  actually  engaged. 

A  man  who  voluntarily  assists  the  servant  of  another  cannot 
recover  from  the  master  for  an  injury  caused  by  the  negligence 
or  misconduct  of  such  servant,  since  he  can  impose  no  greater 
duty  on  the  master  than  a  hired  servant. 

It  may  be  stated  as  a  general  rule  that  a  servant  not  on  duty 
is  not  a  fellow-servant  of  those  engaged  in  the  same  common 
employment  so  as  to  relieve  the  master  from  liability  to  him  for 
injuries  resulting  from  their  negligence.  A  number  of  cases  have 
held  that  servants  on  their  way  to  and  from  work  are,  although 
not  actually  on  duty,  fellow-servants  of  other  employees  of  the 
master  engaged  in  the  same  common  employment.  Thus  a  laborer 
walking  on  a  railroad  track  to  his  work  and  an  engineer  operating 
an  engine  on  the  track  are  fellow-servants,  and  the  former  can- 
not recover  from  the  company  for  injuries  caused  by  the  negli- 
gence of  the  latter.  A  master  is  required  to  employ  a  sufficient 
number  to  perform  safely  his  work,  and  is  also  bound  to  exercise 
diligence  in  the  selection  of  his  servants,  and  if  a  servant  sustains 


394  DOMESTIC  RELATIONS 

injuries  through  the  incompetence  of  a  fellow-servant  whom  the 
master  has  been  negligent  in  employing  or  retaining  in  service, 
the  injured  servant  may  recover  for  such  injury.  The  fact  that 
a  servant  is  physically  disabled  to  perform  his  duties  or  is  too 
youthful  is  sufficient  to  charge  the  master  with  negligence  in 
employing  him.  Should  an  injury  result  to  one  servant  from 
the  intoxication  of  a  fellow-servant,  the  master  could  not  avail 
himself  of  the  fellow-servant  rule  if  he  knew  of  the  drinking 
habits  of  his  servant.  But  occasionally  taking  a  drink  or 
occasionally  being  under  the  influence  of  drink  does  not  con- 
stitute such  a  habit  of  drinking  as  would  authorize  a  finding  that 
a  servant  was  rendered  incompetent  thereby. 


BUSINESS  CRIMES. 

Definition  —  Conspiracy  —  Embesclement — Forgery — Larceny — 
Libel — Trespass — Nuisances — Malicious  Prosecution. 

IN  view  of  the  numerous  criminal  prosecutions  which  have  in 
the  recent  past  been  instituted  against  large  financial  interests, 

and  the  general  crusade  that  is  being  waged  to  protect  the 
public  against  dishonest  business  methods,  it  seems  timely  to  con- 
sider what  may  be  termed  "Crimes  in  Business." 

Public  policy  or  the  public  good  is  the  ground  upon  which 
certain  acts  are  declared  crimes  and  punished,  while  others 
which  may  seem  to  some  equally  wrong  are  not.  Retributive 
justice  does  not  of  itself  warrant  infliction  of  punishment,  for  God 
alone  can  punish  on  that  ground;  but  where  the  public  good 
makes  punishment  necessary  as  an  example  to  deter  others  the 
offender's  punishment  justifies  its  infliction  on  him.  Although  no 
injury  can  be  done  any  member  of  the  community  without  injury 
to  the  community  itself,  wrongs  which  operate  as  a  serious  injury 
to  an  individual  are  unnoticed  unless  they  perceptibly  injure  or 
endanger  the  other  members  of  the  community.  For  instance,  in 
a  certain  case  a  man  was  charged  with  having  falsely  and  deceit- 
fully sold  to  another  sixteen  gallons  of  malted  liquor  for,  and  as, 
eighteen  gallons.  It  was  held  that  such  an  act  was  not  an  in- 
dictable offense,  because  it  was  merely  an  injury  to  a  private 
person.  If,  however,  a  man  uses  false  weights  and  measures 
and  sells  by  them  to  all  or  to  many  of  his  customers,  or  uses 
them  in  the  general  course  of  his  business,  it  would  be  such  an 
ofTense  as  aflfects  the  general  public,  and  hence  punishable  as  a 
crime.  Likewise  any  deceptions  practiced  in  business  which  com- 
mon care  and  prudence  are  insufficient  to  guard  against  are  crimes. 

Such  wrongful  acts  as  affect  only  an  individual  are  classified 
as  private  wrongs  or  torts,  such  as  affect  the  public  as  crimes  or 
misdemeanors.  When  an  act  is  both  a  tort  and  a  crime  the  wrong- 
doer is  liable  both  to  a  civil  action  by  the  person  he  has  particularly 
injured  and  to  a  criminal  proceeding  by  the  State.  The  object  of 
these  two  proceedings  are  quite  distinct ;  the  civil  action  is  for  the 
purpose  of  obtaining  redress  for  a  private  injury,  the  object  of  the 
criminal  proceeding  is  to  punish  the  wrongdoer  as  an  example. 
Another  important  distinction  which  should  be  carefully  observed 

(395) 


396  BUSINESS  CRIMES 

is  that  in  cases  of  torts  the  injured  person  may  settle  with  the 
wrongdoer,  or  may  refrain  from  bringing  any  action  against  him, 
whereas,  in  cases  of  crimes,  as  soon  as  a  crime  is  committed,  the 
injury  is  done  and  the  State's  right  and  duty  to  punish  accrues. 
The  person  particularly  injured  has  no  control  over  the  criminal 
proceedings  and  no  settlement  between  him  and  the  wrong  doer 
can  make  the  act  any  the  less  a  crime  or  take  away  the  State's 
right  to  punish  it.  As  a  matter  of  fact,  if  a  person  attempts  to 
settle  with  the  offender,  or  agrees  not  to  inform  on  him,  he  is  him- 
self guilty  of  a  crime.  To  attempt  to  settle  any  of  the  higher 
grades  of  crimes  for  a  cash  consideration  is  blackmail.  Statutes 
in  most  of  the  States  have  made  it  permissible  to  settle  minor 
crimes  or  misdemeanors. 

A  person  may  commit  a  crime  simply  by  remaining  passive 
when  the  law  requires  him  to  act.  To  illustrate:  A  father  is 
guilty  of  a  crime  who  fails,  when  able,  to  furnish  food  to  a  child 
who  is  dependent  on  him  and  who  dies  from  the  neglect. 

No  better  definition  of  a  crime  can  be  given  than  that  con- 
tained in  Blackstone:  "A  crime,  or  misdemeanor,  is  an  act  com- 
mitted or  omitted  in  violation  of  a  public  law  either  forbidding 
or  commanding  it."  Crimes  have  been  divided  according  to  their 
nature  into  crimes  mala  in  se  and  crimes  mala  prohihita.  The 
former  class  comprises  those  acts  which  are  immoral  or  wrong 
in  themselves,  such  as  murder,  arson,  larceny,  etc.,  while  the 
latter  class  comprises  those  acts  to  which,  in  the  absence  of  statute, 
no  moral  turpitude  attaches,  and  which  are  crimes  only  because 
they  have  been  prohibited  by  statute. 

A  crime  must  be  an  act  either  prohibited  by  the  common  law 
or  by  statute.  There  are  acts  which  may  never  before  have  been 
committed,  but  which,  when  they  are  committed,  may  be  punished. 
The  fact  that  a  man  does  not  know  what  the  general  sanctions  of 
the  common  law  prohibit  is  immaterial,  for  he  is  presumed  to 
know  the  law,  and  ignorance  is  no  excuse.  Morality  and  the 
teachings  of  Christianity  have  exercised  a  potent  influence  in  the 
formation  of  the  common  law.  Such  acts  as  the  heart  and  con- 
science of  every  mentally-responsible  human  being  declared  to  be 
wrong  are  punishable  by  the  common  law.  Such  acts  as  in  them- 
selves are  not  wrong  may  be  constituted  crimes  by  the  Legislature 
on  account  of  grounds  of  public  policy. 

Of  course,  no  one  can  be  held  responsible  for  a  crime,  or 
even  be  guilty  of  a  crime,  unless  he  has  sufficient  capacity  mentally 
and  otherwise  to  commit  it.  The  test  of  responsibility  is  the  power 
of  the  offender  to  differentiate  between  what  is  right  and  what 


BUSINESS  CRIMES  397 

is  wrong.  Consequently  insanity  and  infancy  are  complete 
defenses  against  charges  of  crime. 

Voluntary  drunkenness  at  the  time  a  crime  is  committed 
affords  no  defense,  nor  is  emotional  insanity  available  to  avoid 
the  punishment  for  criminal  acts.  It  has  been  held  that  a  cor- 
poration may  be  criminally  liable  for  omission  to  perform  a  duty 
imposed  upon  it  by  law. 

It  is  not  necessary  that  one  actually  commits  a  criminal  act 
to  be  guilty  thereof.  One  may  employ  an  innocent  person  to 
perform  an  act  such  as  the  delivering  of  poison  to  another,  but 
is  nevertheless  liable  as  a  principal  for  the  crime  committed.  Any- 
one who  aids  or  abets  the  commission  of  a  crime  is  guilty  as  an 
accessory  thereto.  Furthermore  a  mere  attempt  to  commit  a  crime 
is  itself  punishable  as  such,  whether  or  not  any  overt  act  was 
ever  done  in  carrying  out  such  unlawful  purpose. 

An  offense  committed  by  a  wife  in  the  immediate  presence  of 
her  husband  is  presumed  to  be  done  by  his  coercion  and  in  such 
event  the  wife  is  not  liable  for  her  act.  Coverture  is  no  protection 
against  the  consequence  of  a  criminal  act,  when  the  part  taken 
by  the  wife  is  shown  to  have  been  active  and  willing.  Where  a 
wife  procured  a  check  and  suggested  to  her  husband  the  idea  of 
raising  it,  and  he  in  her  presence  erased  the  payee's  name  and  the 
amount,  and  when  she  was  not  present  filled  the  space  with  a 
larger  amount,  she  receiving  nearly  one-half  the  proceeds  of  the 
crime,  it  was  held  that  she  was  not  properly  convicted  as  a  prin- 
cipal. A  wife  cannot  commit  larceny  by  stealing  her  husband's 
goods,  neither  can  she  embezzle  them.  Neither  can  a  wife  be 
convicted  of  receiving  stolen  goods  from  her  husband,  where  they 
were  stolen  by  him  and  delivered  to  her. 

No  person  can  be  held  liable  criminally  for  an  act  which  it  is 
not  in  his  power  to  prevent.  In  cases  of  extreme  peril  from  ship- 
wreck where  there  is  a  necessity  that  a  part  should  be  sacrificed 
to  save  the  remainder,  a  decision  by  lot  is  ordinarily  resorted  to 
unless  the  peril  is  so  sudden  and  overwhelming  as  to  leave  no 
choice  of  means  and  no  moment  for  deliberation.  Actual  force 
upon  the  person  or  personal  restraint,  or  fear  of  personal  injury 
or  imprisonment,  excuses  acts  committed  during  the  continuance 
of  such  force  or  duress. 

Having  in  a  general  way  analyzed  the  elements  which  con- 
stitute a  crime,  we  are  in  a  better  position,  it  is  hoped,  to  con- 
sider those  particular  crimes  which  affect  a  man  in  his  business 
relations. 


398  BUSINESS  CRIMES 

Criminal  Conspiracy. 

One  of  the  most  serious  in  the  calendar  of  crime  is  that  of 
conspiracy.  Any  consideration  to  do  an  act  which  amounts  to  a 
civil  wrong  is  a  criminal  conspiracy.  As  soon  as  the  unlawful 
combination  or  agreement  is  entered  into  the  crime  of  conspiracy 
is  complete,  and  it  is  not  necessary  that  there  should  be  any  act 
done  or  attempt  made  to  carry  out  the  agreement.  A  combination 
of  persons  to  commit  a  wrong  is  so  much  more  dangerous,  because 
of  the  increased  power  to  do  the  wrong,  that  the  law  regards 
it  as  criminal,  whereas  if  the  wrong  were  attempted  by  a  single 
individual  the  act  would  not  be  punishable  as  a  crime. 

It  has  been  held  criminal  to  conspire  to  do  acts  which  will 
prejudice  the  public  generally,  as  for  instance  to  manufacture  a 
spurious  article  to  sell  as  genuine ;  to  obtain  a  monopoly,  and  raise 
the  price  of  a  commodity,  so  as  to  compel  consumers  to  purchase 
at  an  exorbitant  price.  A  combination  entered  by  dealers  to  pre- 
vent competition  in  the  sale  of  coal  has  been  held  to  constitute 
a  criminal  conspiracy,  without  regard  to  what  was  done,  and, 
though  the  object  was  protection  from  ruinous  rivalry,  and  no 
attempt  was  made  to  charge  excessive  prices.  The  gist  of  the 
offense  of  conspiracy  is  the  unlawful  confederacy  to  do  an  unlaw- 
ful act  or  to  do  a  lawful  act  by  unlawful  means. 

One  of  the  most  common  forms  of  conspiracy  in  business  is 
to  cheat  and  defraud,  and  a  division  of  the  profits  of  a  fraudulent 
transaction  is  sufficient  evidence  of  a  combination  or  conspiracy 
to  defraud.  An  agreement  to  defraud  any  person,  class,  company 
or  corporation  constitutes  a  conspiracy.  Any  understanding  by 
two  or  more  persons  to  dispose  of  goods  in  contemplation  of  bank- 
ruptcy is  punishable  as  a  conspiracy. 

Any  agreement  to  depress  the  value  of  the  capital  stock  of  a 
corporation  dealt  in  on  the  Stock  Exchange  is  a  crime.  The  law 
punishes  any  joint  effort  to  purchase  goods  upon  misrepresenta- 
tion of  solvency  or  with  no  expectation  of  paying  for  same, 
as  a  conspiracy. 

No  one  is  authorized  to  destroy  or  hinder  unlawfully  the  law- 
ful business  of  another  for  the  purpose  of  helping  himself.  Any 
conspiracy  to  injure  a  man  in  his  trade  or  profession  is  indictable 
as  a  crime.  A  combination  between  one  member  of  a  partnership 
and  a  third  person  to  issue  and  circulate  the  notes  of  the  firm 
drawn  by  such  parties  for  the  purpose  of  paying  his  individual 
debts  is  criminal.  A  conspiracy  is  indictable  where  the  object  is 
to  cheat  by  fraudulently  overvaluing  a  commodity. 

The  labor  and  skill  of  the  workmen,  the  ^lant  of  the  manu- 


BUSINESS  CRIMES  399 

facturer  and  the  equipment  of  the  farmer  are  in  an  equal  sense 
property.  Every  man  has  the  right  to  employ  his  talents,  industry 
and  capital  as  he  pleases,  free  from  the  dictation  of  others ;  and, 
if  two  or  more  persons  combine  to  coerce  his  choice  in  this  behalf 
it  is  a  criminal  conspiracy,  whether  the  means  employed  are  actual 
violence,  or  a  species  of  intimidation  that  works  upon  the  mind. 

Conspiracy  to  compel  an  employer  to  discharge  certain  work- 
men and  threatening  to  quit  the  employment  if  he  does  not,  has 
been  held  to  be  an  indictable  conspiracy,  although  many  States 
have  passed  special  statutes  with  reference  to  trade  unions.  The 
courts  have  held  that  associations  of  men  may  endeavor  peaceably 
and  in  a  reasonable  manner,  to  persuade  others  to  cease  or  abstain 
from  work ;  but  if  by  force  or  intimidation  they  endeavor  to  con- 
trol the  free  agency,  or  overcome  the  free  will  of  their  fellow- 
workmen  they  become  guilty  of  a  penal  offense.  The  exposure  of  a 
legitimate  business  to  the  control  of  an  association  that  can  order 
away  its  employees  and  frighten  away  others  that  it  may  seek  to 
employ,  and  thus  be  compelled  to  cease  the  further  prosecution 
of  its  work,  is  a  condition  of  things  utterly  at  war  with  every  prin- 
ciple of  justice  and  with  every  safeguard  of  protection  that  a 
citizen  under  our  system  of  government  is  entitled  to  enjoy. 

The  law  likewise  makes  it  criminal  for  employers  to  combine 
for  the  purpose  of  depressing  the  wages  of  labor  which  is  prejudi- 
cial to  the  public  and  oppressive  to  the  individual.  The  "boycott" 
is  not  the  remedy  to  adjust  the  difference  between  capital  and 
labor. 

It  is  unlawful  for  employers  wrongfully  to  coerce,  intimidate 
or  hinder  the  free  choice  of  workmen  in  the  disposal  of  their  time 
and  talents.  It  is  commendable  for  any  body  of  men  to  associate 
themselves  together  for  the  purpose  of  bettering  their  financial 
and  social  condition,  and  the  very  genius  of  free  institutions 
invites  them  to  higher  levels  and  better  fortunes.  There  is  noth- 
ing unlawful  in  a  strike  to  compel  an  employer  to  comply  with 
certain  regulations  and  when  on  said  strike  in  "picketing"  the 
employer's  premises. 

By  "picketing"  we  mean  watching  and  speaking  to  the  work- 
men as  they  go  to  or  return  from  their  employment,  to  induce 
them  to  leave  the  service,  so  long  as  they  abstain  from  actual 
violence.  Men  may  lawfully  combine  together  to  dictate  their 
own  wages,  fraternize  with  their  own  associates,  choose  their  own 
employers,  and  serve  man  and  mammon  according  to  the  dictates 
of  their  own  conscience. 

In  all  conspiracies  it  should  be  remembered  that  the  act  of 


400  BUSINESS  CRIMES 

each  conspirator  is  the  act  of  the  other  if  done  in  the  prosecution 
of  the  common  design.  Any  participation  in  a  concerted  plan  to 
injure  another  by  fraud  or  otherwise  renders  a  party  hable  as 
principal.  If  an  act  in  its  natural  characteristics  and  quality  is 
unlawful,  knowledge  of  its  wrongful  character  is  presumed. 

Embezzlement. 

Embezzlement  is  a  fraudulent  appropriation  of  another's 
property  by  a  person  to  whom  it  has  been  entrusted  or  into  whose 
hands  it  has  lawfully  come.  It  differs  from  larceny  in  that  the 
original  taking  of  the  property  was  lawful  or  with  the  consent  of 
the  owner,  while  in  larceny  the  felonious  intent  must  have  existed 
at  the  time  of  the  taking.  This  crime  is  a  statutory  offense  and 
involves  two  general  elements — (i)  a  breach  of  duty  or  trust  in 
respect  of  money,  property  or  effects,  in  the  party's  possession 
belonging  to  another;  (2)  the  wrongful  or  fraudulent 
appropriation  thereof. 

Where  a  person  drawing  his  deposit  from  a  bank  is  by 
mistake  paid  more  than  is  due  him  he  is  not  guilty  of  embezzle- 
ment, but  may  be  sued  for  the  difference  in  a  civil  action.  There 
must  be  a  relation  of  confidence  and  trust  between  the  person 
appropriating  property  and  the  owner  to  constitute  embezzlement, 
and  the  appropriation  must  be  with  a  fraudulent  intent.  Mere 
breach  of  contract,  as,  for  instance,  a  failure  to  pay  back  borrowed 
money,  or  a  mere  neglect  to  pay  over  funds,  is  not  sufficient. 
If  a  servant,  clerk  or  agent  has  merely  the  custody  of  the  money 
or  goods  which  he  feloniously  appropriates  the  offense  is  larceny ; 
if  he  has  the  possession  it  is  embezzlement.  Custody  as  dis- 
tinguished from  possession  in  the  connection  here  used  means  a 
charge  to  keep  and  care  for  the  owner,  subject  to  his  order  and 
direction,  without  any  interest  or  right  therein  adverse  to  him, 
which  every  servant  possesses  with  regard  to  the  goods  of  his 
master  confided  to  his  care,  which  custody  may  be  terminated  or 
prolonged  according  to  the  will  and  pleasure  of  the  master. 
Where,  however,  the  owner  of  personal  property  delivers  it  to 
another  for  any  purpose,  intending  not  only  to  impart  with  the 
custody,  but  with  the  absolute  right  and  control  of  the  property 
for  any  length  of  time,  he  parts  not  only  with  such  custody,  but 
the  legal  possession  as  well.  A  trust  relationship  must  exist  at  the 
time  of  the  reception  of  the  money  by  the  agent  or  employee  or  the 
money  must  be  under  the  care  of  the  agent  by  virtue  of  his  agency 
or  employment,  in  order  to  constitute  the  crime  of  embezzlement. 


BUSINESS  CRIMES  401 

Forgery. 

In  connection  with  the  crime  of  forgery  it  has  been  held  that 
where  a  person  procures  the  signature  of  another  upon  a  blank 
paper,  and  without  authority  from  the  latter,  writes  a  promissory 
note  or  other  apparently  valid  instrument  above  it,  he  is  guilty 
of  forgery.  This  rule  of  law  applies  to  cases  where  an  agent, 
having  the  genuine  signature  of  his  principal  with  instructions 
to  write  an  instrument  disobeys  his  instructions. 

The  fraudulent  alteration  of  an  instrument,  with  intention 
to  defraud  or  prejudice  another,  is  such  a  false  making  as  to  con- 
stitute forgery.  The  signing  of  a  fictitious  name  is  not  forgery 
when  the  offense  is  not  the  assumption  of  the  name  of  a  supposed 
third  person,  but  is  merely  the  adoption  of  an  alternative  name 
of  the  party  charged.  Likewise  where  one  subscribes  a  fictitious 
name  to  a  check,  and  passes  it  as  his  own,  it  will  not  be  forgery 
if  credit  is  given  to  the  person  rather  than  the  name. 

The  intent  to  defraud  is  not  limited  to  obtaining  money  or 
property ;  it  is  sufficient  if  the  forged  instrument  is  to  the  prejudice 
of  the  rights  of  some  person.  The  intent  to  defraud  cannot  be 
overcome  by  the  fact  that  the  forgery  was  not  successful  and  that 
no  one  has  been  prejudiced.  While  it  is  true,  as  a  general  propo- 
sition, that  a  person  cannot  be  punished  for  forgery  for  making 
false  entries  in  his  own  books,  yet  it  has  been  held  that  it  is  for- 
gery to  make  false  entries  in  pass  books,  to  make  false  entries  in 
books  of  original  entry,  to  make  false  entries  in  book  settlements, 
and  for  a  clerk  to  make  false  entries  in  books  he  is  employed  to 
keep. 

An  instrument  to  be  the  subject  of  forgery  must  possess  some 
legal  effect.  Consequently  an  instrument  void  on  its  face  cannot 
be  made  the  subject  of  forgery.  Instruments  showing  a  legal  lia- 
bility on  the  part  of  a  party  whose  name  is  purported  to  be  sigfned 
thereto  to  pay  a  sum  of  money  are  subjects  of  forgery ;  but  it  is 
otherwise  as  to  an  instrument  not  payable  in  money  nor  to  the 
bearer,  and  which  the  maker  only  promised  to  take  in  payment. 
Where  a  promissory  note  is,  after  being  endorsed  by  the  payee, 
altered  by  the  maker  and  discounted  by  him,  it  is  a  forgery  of 
the  note  and  not  of  the  endorsment.  Checks  are  subject  to 
forgery  even  though  post-dated. 

Uttering  Forged  Instruments. 

While  the  making  of  a  forged  instrument  and  the  uttering 
of  it  by  the  same  person  as  one  transaction  constitute  but  one 
offense,  one  may  be  gpjilty  of  uttering  an  instrument  forged  by 

26 


402  BUSINESS  CRIMES 

another,  but  to  constitute  the  latter  offense  it  is  necessary  that 
the  person  who  utters  (passes)  the  forged  instrument  should 
have  actual  knowledge  of  its  falsity.  It  will  be  noticed  that  the 
uttering  of  an  instrument  which  is  not  a  forgery  does  not  come 
within  the  definition ;  nevertheless  the  uttering  of  a  false  instru- 
ment, with  intent  to  defraud,  is  an  offense,  although  there  was 
lack  of  evil  intent  in  the  person  who  fabricated  the  instrument. 

Uttering  and  publishing  of  a  forged  instrument  consists  in 
the  delivery  of  such  instrument  to  another  for  value,  with  an 
intention  that  the  same  shall  be  put  in  circulation,  and  an  inten- 
tion thereby  to  defraud  by  using  it  in  some  way  so  as  to  get 
money  or  credit  thereon  or  by  means  thereof.  The  following 
case  will  illustrate  what  constitutes  an  uttering  of  a  forged  paper : 
A,  a  stranger  in  Omaha,  met  B  who  professed  to  have  a  large 
farm  near  St.  Louis,  and  desired  to  employ  A  to  superintend  it. 
While  they  were  conversing  a  pretended  freight  agent  appeared 
who  was  introduced  by  B  to  A  as  such,  and  who  demanded  of  B 
the  payment  of  a  pretended  freight  bill  of  $65.  B  pretended  he 
had  not  sufficient  change  to  pay  the  bill,  presented  to  A  a  forged 
check  on  an  Omaha  bank  for  $250,  saying  he  could  get  the  money 
on  presentation,  and  asked  him  to  cash  it.  The  Court  held  that 
this  transaction  constituted  an  uttering  of  the  check,  although 
it  was  not  actually  transferred. 

Presentation  of  a  draft  or  order  for  money  to  the  person 
to  whom  it  purports  to  be  directed,  for  payment  thereof,  by  one 
knowing  it  to  be  forged,  although  payment  is  refused  and  the 
draft  is  returned  to  the  presenter,  is  an  uttering  and  publishing 
within  the  meaning  of  the  statute.  Depositing  with  a  bank  for 
collection  notes  containing  forged  endorsements,  with  intent  to 
defraud,  in  a  case  where  both  the  holder  and  the  maker  know 
of  the  existence  and  character  of  the  forged  endorsement  is  a 
criminal  act.  Collecting  money  on  a  forged  endorsement  is  an 
uttering  whether  or  not  it  is  produced  at  the  time  payments  are 
received. 

In  concluding  our  discussion  of  the  crime  of  forgery  we 
may  summarize  as  follows :  To  render  one  liable  for  forgery  it 
is  not  essential  that  the  instrument  on  which  the  prosecution  is 
based  should  have  been  made  or  altered  by  defendant  himself. 
He  will  be  guilty  of  the  offense  if  with  fraudulent  intent  he  pro- 
cures this  to  be  done  by  another,  or  after  procuring  it  to  be  done 
utters  or  publishes  it;  and  it  is  immaterial  that  the  person  mak- 
ing or  altering  the  instrument  is  innocent  of  any  fraudulent  intent. 
One  who  procures  another  to  utter  a  forged  instrument  is  as 


BUSINESS  CRIMES  403 

culpable  as  if  he  had  perpetrated  the  act  himself.  One  is  also 
guilty  of  forgery  where  he  procures  another  to  sign  the  latter's 
own  name,  which  the  former  thereafter  represents  to  be  that  of 
a  third  person.  It  is  an  elementary  proposition  of  law  that  all 
who  act  together  with  a  common  design  are  principals.  The 
degree  of  aid  or  assistance  given  in  the  forgery  of  papers  with 
the  intent  to  defraud  has  been  held  to  be  unimportant.  Where 
an  insurance  agent  forged  an  application  for  insurance  and 
notes  for  the  premium,  and  sent  them  to  his  company  for  the 
purpose  of  fraudulently  securing  his  commission,  it  was  held 
that  he  could  not  escape  conviction  on  the  ground  that  the 
forgery  was  discovered  and  no  policy  issued,  and  the  notes  never 
became  valid  obligations  for  the  payment  of  money. 

Larceny. 

The  crime  of  larceny  is  frequently  committed  in  business 
circles,  and  we  will,  therefore,  confine  our  attention  briefly  to  a 
consideration  of  the  elements  which  comprise  this  offense. 

Larceny  has  been  defined  as  the  wrongful  and  fraudulent 
taking  and  carrying  away  by  any  person  of  the  mere  personal 
goods  of  another,  from  any  place  with  a  felonious  intent  to  con- 
vert them  to  the  taker's  use,  and  make  them  his  property  without 
the  consent  of  the  owner.  The  taking  is  an  essential  part  of  the 
crime  of  larceny,  but  the  stolen  property  need  not  pass  into  the 
actual  manual  possession  of  the  thief.  It  is  not  necessary  that 
the  taking  of  another's  property  be  done  with  felonious  intent, 
if  there  be  a  subsequent  wrongful  appropriation  thereof.  To 
illustrate :  A  drove  away  a  flock  of  lambs  from  a  field,  and  in  so 
doing  inadvertently  drove  away  with  them  a  lamb,  the  property 
of  another  person,  and  as  soon  as  he  discovered  that  he  had 
done  so,  sold  the  lamb  for  his  own  use,  and  then  denied  all 
knowledge  of  it.  This  was  held  to  be  larceny.  The  distinction 
between  larceny  and  robbery  is  that  the  former  is  done  without 
violence  or  circumstances  of  terror  resorted  to  for  the  purpose 
of  inducing  the  owner  to  part  with  his  property,  whereas  the 
latter  is  the  taking  of  another's  property  by  force.  At  common 
law  the  only  subjects  of  larceny  were  tangible  movable  chattels, 
something  which  could  be  taken  in  possession  and  carried  away, 
and  which  had  intrinsic  value.  In  Pennsylvania  statutes  have 
been  enacted  making  it  larceny  to  misappropriate  stock  certifi- 
cates, promissory  notes,  bills  of  exchange,  checks,  receipts, 
account  books,  letters  patent  and  other  commercial  specialties 
which,  at  common  law,  could  not  be  made  the  subjects  of 
larceny. 


404  BUSINESS  CRIMES 

In  business  transactions  this  crime  most  frequently  occurs 
when  one  seeks  to  obtain  property  in  the  possession  of  another 
upon  the  erroneous  impression  that  it  belongs  to  the  taker,  with- 
out legal  process  of  course.  In  order  to  constitute  larceny,  it  is 
essential  that  possession  of  another's  property  be  obtained  unlaw- 
fully; that  is,  against  the  will  or  without  the  consent  of  the 
owner.  It  is  larceny  for  one  to  insert  a  metal  disk  in  an  auto- 
matic slot  machine  for  the  purpose  of  obtaining  something  of 
value,  which  the  owner  intended  to  part  with  only  to  one  who 
placed  a  coin  in  the  slot.  It  may  seem  paradoxical,  but  it  is 
nevertheless  the  case  that  a  man  may  steal  his  own  property  if 
by  taking  it  his  intent  is  to  charge  with  its  value  one  to  whom 
he  had  bailed  it. 

A  part  owner  of  property  cannot  be  convicted  of  stealing 
it  unless  the  person  from  whom  it  was  taken  was  entitled  to  its 
exclusive  possession.  The  mere  delivery  of  property  to  another 
for  a  special  purpose  vests  in  the  person  receiving  it  only  the  tem- 
porary charge  or  custody ;  the  possession  of  the  property  remains 
in  the  owner  and  a  conversion  of  it  is  larceny,  as  in  the  case 
of  the  delivery  of  money  by  the  owner  to  another  for  the  pur- 
pose of  having  it  changed  into  other  money  of  a  different  denom- 
ination. The  same  rule  applies  to  the  receipt  and  appropriation 
of  money  by  one  not  entitled  thereto,  paid  him  by  mistake.  A 
delivery  of  property  on  condition  of  immediate  payment  does  not 
transfer  the  right  of  possession  to  such  property  until  the  per- 
formance of  the  condition,  and  if  the  receiver  of  the  property 
retains  its  possession  without  making  payment  he  may  be  charged 
with  larceny. 

Where  one  dealer  sends  an  order  to  another  for  a  number 
of  articles  with  the  understanding  that  they  were  to  be  exhibited 
to  a  customer  and  those  not  sold  returned,  such  dealer  is  guilty 
of  larceny  if  he  refuses  to  return  the  goods  upon  demand  or 
account  for  their  sale.  Where  goods  were  bought  to  be  deliv- 
ered C.  O.  D.  and  when  so  sent  the  buyer  pays  with  a  check  which 
is  subsequently  returned  with  "not  sufficient  funds"  marked 
thereon,  and  thereafter  refuses  to  pay  for  the  same  and  retains 
possession  of  the  goods,  he  is  guilty  of  larceny. 

The  felonious  intention  which  is  essential  to  the  crime  of 
larceny  must,  as  a  general  rule,  exist  at  the  very  time  of  the 
taking;  no  subsequent  intent  will  render  the  previous  taking 
felonious.  This  rule  does  not,  however,  apply  to  a  bailee  or  to  a 
person  to  whom  property  is  delivered  for  some  specific  purpose. 


BUSINESS  CRIMES  405 

Lost  Property. 

Lost  property  may  be  the  subject  of  larceny  and  should 
receive  the  same  protection  from  the  law  as  goods  in  any  other 
situation.  To  constitute  theft  of  lost  property  the  fraudulent 
intent  which  is  the  gist  of  the  offense  must  exist  in  the  mind 
of  the  taker  at  the  time  of  the  taking.  The  existence  of  such 
intent  is  properly  inferred  where  the  finder  knows  the  owner 
of  the  property  at  the  time  of  the  finding,  or  had  reasonable 
grounds  of  knowing  who  he  is,  and  the  same  rule  applies  to  the 
finding  and  appropriation  of  marked  property,  or  any  property 
where  the  finder  has  at  the  time  of  the  finding  any  means  of 
inquiry  such  as  to  give  him  reason  to  believe  that  with  reason- 
able effort  the  owner  will  be  found.  To  avoid  a  charge  of  lar- 
ceny the  finder  of  lost  property  should  adopt  all  reasonable  means 
of  ascertaining  the  owner. 

Where  goods  of  a  master  are  in  a  servant's  custody,  any  act 
of  the  servant  which  is  inconsistent  with  the  master's  retaining 
the  possession  of  them  is  sufficient  to  constitute  a  taking  of  pos- 
session by  the  servant.  If  the  owner  of  property  places  the  same 
in  the  possession  of  another,  such  as  a  tailor  or  cobbler,  who 
thereby  acquires  an  interest  in  the  goods  for  services  rendered 
thereon,  the  owner  will  be  guilty  of  larceny  if  he  takes  his  own 
property  from  such  bailee  without  his  consent  and  without  paying 
for  his  services. 

If  a  chattel  has  been  delivered  and  received  under  a  mutual 
mistake  as  to  its  character,  a  subsequent  misappropriation  by  the 
recipient  will  not  constitute  larceny.  There  are  oftentimes  cases 
where  one  takes  another's  property  without  his  consent  that  do 
not  amount  to  larceny.  Thus,  where  a  bartender  refused  to  get 
up  and  serve  some  late  customers  and  they  helped  themselves, 
offering  to  pay  for  their  refreshment  the  next  day,  which  they 
did,  the  court  held  no  larceny  was  committed.  Where  one  takes 
another's  saddle  but  leaves  more  than  sufficient  property  to  pay 
for  it  with  a  letter  directing  the  owner  to  pay  himself  out  of  such 
property  the  taker  is  not  guilty  of  larceny.  Some  authorities  are, 
however,  to  the  contrary.  It  is  an  element  of  the  offense  that 
the  taking  must  be  felonious  and  for  the  purpose  of  gain. 

Larceny  by  Bailee. 

It  has  been  made  a  crime  by  statute  for  any  person  who  is 
a  bailee  of  property  to  fraudulently  take  and  convert  the  same 
to  his  own  use,  or  to  that  of  any  other  person  except  the  owner 


4o6  BUSINESS  CRIMES 

thereof.  Anyone  who  hires  property  from  another  and  refuses 
to  return  same  is  guilty  of  larceny  by  bailee.  One  leasing 
jewelry  or  other  personal  property  upon  the  installment  plan 
with  an  option  to  purchase  same  upon  the  payment  of  a  certain 
number  of  installments  is  guilty  of  larceny  by  bailee  if  he 
default  in  the  payment  of  installments  and  refuse  to  deliver  the 
leased  property  upon  demand  being  made  thereafter. 

Libel. 

No  more  grievous  wrongs  can  be  committed  in  society 
than  those  which  deleteriously  affect  a  man's  character  and 
reputation.  The  faculty  of  speech,  which  is  one  of  the  first 
and  noblest  gifts  of  the  Creator,  has  been  abused  for  the 
purposes  of  blasphemy,  fraud  and  malice,  as  has  likewise  the 
freedom  of  the  press,  which  is  one  of  the  most  potent  safeguards 
of  liberty.  To  place  a  bridle  on  men's  tongues  so  that  they  may 
be  restrained  from  calumny  and  to  curb  the  licentiousness  of  the 
public  press  and  other  means  of  communication  has  been  a  prob- 
lem which  has  engaged  the  attention  of  jurists  from  time  im- 
memorial. In  view  of  their  importance,  we  will  endeavor  in 
the  present  article  to  distinguish  between  these  co-related  offenses, 
and  point  out  the  limitations  which  have  been  imposed  by  law 
upon  the  written  and  spoken  communications  of  men. 

A  libel  has  been  judicially  defined  as  a  malicious  defama- 
tion, expressed  in  print  or  writing,  or  by  signs  and  pictures  tend- 
ing to  blacken  the  memory  of  the  dead,  with  an  intent  to  pro- 
voke the  living,  or  to  injure  the  reputation  of  one  who  is  alive, 
and  thereby  expose  him  to  public  hatred,  contempt  and  ridicule. 
It  may  be  said  generally  that  language  in  writing  is  libelous 
which  denies  to  a  man  the  possession  of  some  such  worthy  quality 
as  every  man  is  presumed  to  possess,  or  which  tends  to  bring  a 
party  into  public  hatred  or  disgrace,  or  to  degrade  him  in  society. 

False  defamatory  words,  if  written  and  published,  constitute 
a  libel ;  if  spoken,  a  slander.  Libel  has  always  been  regarded  as 
a  more  serious  offense  than  slander,  because  anything  that  is 
written  and  published  evinces  a  more  deliberate  intention  to 
injure  another  and  is  calculated  to  circulate  more  extensively 
than  mere  oral  words  which,  when  spoken,  are  frequently  soon 
forgotten  or  misunderstood.  Many  words  if  spoken  of  another 
give  no  right  of  action  to  the  party  to  whom  they  refer,  which, 
however,  if  written  would  be  actionable.  Words  spoken  must 
impute  some  crime  so  as  to  endanger  the  person  to  whom  they 


BUSINESS  CRIMES  407 

relate,  or  they  must  impute  to  him  something  which  would  tend 
to  exclude  him  from  society  and  lead  one  to  avoid  him.  But 
a  publication  which  renders  the  person  ridiculous  merely,  and 
exposes  him  to  contempt,  which  tends  to  render  his  situation 
in  society  uncomfortable  and  irksome,  which  reflects  a  moral 
turpitude  on  the  party  and  holds  him  up  as  a  dishonest  and 
mischievous  member  of  society,  and  describes  him  in  a  scurrilous 
and  ignominious  point  of  view,  is  considered  as  a  libel. 

A  man  has  the  same  constitutional  right  to  the  protection 
of  his  character  and  reputation  as  he  has  to  his  liberty  and  prop- 
erty. The  foundation  of  a  man's  redress  for  defamation, 
whether  by  libel  or  slander,  is  the  injury  done  to  his  reputation. 
A  mere  injury  to  a  man's  feelings  is  not  sufficient  to  enable  him 
to  sue  for  damages.  The  law  recognizes  certain  inferences  from 
the  use  of  certain  words,  and  if  spoken  or  written  of  another, 
the  injured  party  may  recover  without  proof  of  special  pecuniary 
damages.  It  can  readily  be  perceived  that  other  words  may  be 
used  which  in  themselves  are  not  defamatory,  but  which  when 
used  under  certain  circumstances  may  result  in  great  injury  to 
another. 

What  Constitutes  Libel. 

It  may  be  stated  as  a  general  principle  of  law  that  any  words 
are  libelous  which  impute  that  the  party  to  whom  they  refer  has 
been  guilty  of  a  crime,  fraud,  dishonesty,  immorality,  vice,  or 
dishonorable  conduct,  or  has  been  accused  or  suspected  of  any 
such  misconduct,  or  which  suggest  that  the  plaintiff  is  suffering 
from  any  infectious  disorder,  or  which  have  a  tendency  to  injure 
him  in  his  office,  profession,  calling  or  trade.  In  fact,  the  courts 
have  gone  so  far  as  to  hold  that  to  use  words  which  hold  the 
plaintiff  up  to  contempt,  hatred,  scorn,  or  ridicule,  and  which 
by  thus  engendering  an  evil  opinion  of  him  in  the  minds  of  right- 
thinking  men  tend  to  deprive  him  of  friendly  intercourse  and 
society,  are  libelous.  It  would  be  impossible  to  enumerate  what 
words  are  libelous  and  what  are  not.  To  write  of  a  man  "I  look 
on  him  as  a  rascal"  is  a  libel ;  written  accusations  chargfing 
another  with  falsehood  are  libelous,  but  it  has,  singularly  enough, 
been  held  that  to  charge  one  with  being  a  "political"  liar  is  not 
a  libel. 

A  publication  which  imputes  an  unwillingness  or  refusal  to 
pay  just  debts  is  libelous  as  tending  to  destroy  the  party's  repu- 
tation for  integrity  and  fair  dealing.  So  it  has  been  generally 
held  libelous  to  publish  or  cause  to  be  published  one's  name  as 


4o8  BUSINESS  CRIMES 

a  delinquent  debtor  or  as  one  unworthy  of  financial  credit.  But 
when  the  charge  does  not  affect  a  person  in  his  business  or  pro- 
fession, it  is  not  libelous  to  publish  of  him  that  he  owes  money, 
or  to  charge  him  with  mere  inability  to  pay  his  debts,  or  with 
failure  to  pay  his  debts.  To  write  that  a  man  is  slow  to  pay 
his  debts  is  not  actionable. 

Any  publication  which  charges  another  with  being  guilty  of  a 
breach  of  trust  or  betrayal  of  confidence  is  libelous.  We  use  the 
word  "publication"  in  connection  with  a  libel  as  any  writing,  or 
print,  such  as  a  caricature,  which  passes  from  one  to  another ;  in 
connection  with  slander  as  words  spoken  by  one  to  another  who 
is  not  the  party  to  whom  they  refer.  It  is  interesting  to  note,  in 
view  of  the  political  rivalries  of  to-day,  that  it  constitutes  a  libel 
to  charge  another  by  any  publication  with  political  corruption, 
or  the  use  of  political  influence  or  privilege  for  pecuniary  gain, 
even  though  the  party  against  whom  the  charge  is  made  is  not 
a  public  officer  or  a  candidate  for  office. 

To  charge  another  by  word  of  mouth  with  being  a  drunk- 
ard is  not  in  itself  a  legal  offense  unless  it  implies  a  disqualifica- 
tion in  connection  with  a  man's  business  or  employment.  In 
many  jurisdictions  statutes  have  been  passed  providing  that  all 
words  which  from  their  usual  construction  and  common  accepta- 
tion are  considered  as  insults  and  tend  to  a  breach  of  the  peace 
are  actionable. 

The  courts  have  recognized  that  it  is  the  right  and  duty 
of  newspapers  to  discuss  measures  relating  to  the  morals,  health, 
welfare,  comfort  and  happiness  of  the  public,  but  a  newspaper 
is  no  more  immune  from  liability  for  publishing  libelous  matter 
than  is  an  individual.  Editors  have  the  full  liberty  to  criticise 
the  conduct  and  motives  of  public  men,  and  the  measures  and 
policies  of  government,  but  the  discussion  must  be  fair  and 
legitimate.  If  one  goes  out  of  his  way  to  asperse  the  personal 
character  of  a  public  man  and  to  ascribe  to  him  base  and  corrupt 
motives,  he  must  do  so  at  his  peril,  and  must  either  prove  the 
truth  of  what  he  says  or  answer  in  damages  to  the  party  injured. 

The  law  carefully  guards  the  credit  of  merchants,  traders 
and  business  men,  and  oral  or  written  words  imputing  to  them 
insolvency,  bankrupty  or  want  of  credit  are  actionable  without 
any  proof  of  special  damage.  A  communication  from  a  mer- 
cantile agency  organized  for  mutual  protection  among  business 
men  is  held  to  be  privileged  when  made  to  one  having  an  interest 
in  the  subject  matter.  It  has  been  held  that  defamatory  words 
come  under  the  head  of  what  is  known  in  law  as  "privileged 


BUSINESS  CRIMES  409 

communications"  when  published  without  malice  to  parties  who 
have  a  common  business  interest  in  the  subject  matter  of  the 
publication,  even  though  it  is  false  and  injurious. 

Privileged  Communications. 

Statements  may  be  written  derogatory  of  another  under  such 
circumstances  as  to  exonerate  the  party  writing  them  from  lia- 
bility. It  is  well  settled  that  fair  and  honest  criticism  in  matters 
of  public  concern  is  privileged.  All  political,  legal  and  ecclesias- 
tical matters  are  matters  of  public  concern.  Criticisms  of  books, 
public  institutions,  theatrical  and  musical  performances  are 
deemed  to  be  privileged,  however  severe  or  caustic  such  criticisms 
may  be. 

The  law  recognizes  certain  communications  as  privileged 
from  motives  of  pure  public  policy  which  under  ordinary  cir- 
cumstances would  be  libelous.  Libelous  or  slanderous  matter 
published  in  the  due  course  of  a  judicial  proceeding  is  absolutely 
privileged.  This  rule  has,  of  course,  its  limitations.  This  privi- 
lege which  is  given  to  individuals  in  the  interest  of  an  efficient 
administration  of  justice  cannot  be  abused  as  a  cloak  beneath 
which  to  gratify  private  malice.  Statements  made  by  witnesses 
in  the  regular  course  of  a  judicial  proceeding  are  absolutely 
privileged,  as  are  likewise  the  deliberations  of  a  jury. 

Where  a  party  makes  a  communication,  and  such  communi- 
cation is  prompted  by  a  duty  owed  either  to  the  public,  or  to  a 
third  party,  or  the  communication  is  one  in  which  the  party  has 
an  interest  and  it  is  made  to  another  having  a  corresponding 
interest,  the  communication  is  privileged  if  made  in  good  faith 
and  without  actual  malice.  This  privilege  is  not  lost  by  the  fact 
that  the  communication,  whether  oral  or  written,  is  incidentally 
brought  to  the  attention  of  others  than  those  for  whom  it  was 
intended.  Where  unnecessary  publicity  is  given  to  a  communi- 
cation malice  will  be  inferred.  It  has  been  held  under  this  rule 
that  a  communication  which  would  be  privileged  if  sent  by  letter 
becomes  unprivileged  if  sent  by  telegram. 

Persons  who  join  churches,  secret  societies,  benevolent  or 
temperance  organizations  submit  to  the  jurisdiction  of  those 
bodies  in  matters  of  faith  and  individual  conduct  affecting  their 
relations  as  members,  and  subject  themselves  to  tribunals  estab- 
lished by  those  bodies  to  pass  upon  such  questions.  Accusations 
made  by  one  member  against  another,  or  words  spoken  or  written 
in  the  course  of  an  investigation  or  trial,  are  regarded  as  privi- 
leged.    If  one  man  in  the  course  of  a  dispute  with  another  makes 


410  BUSINESS  CRIMES 

certain  inquiries  the  answer  to  such  inquiries  is  privileged  if  such 
answer  does  not  go  beyond  the  question.  Defamatory  words 
do  not  become  privileged  merely  because  uttered  in  the  strictest 
confidence  by  one  friend  to  another,  nor  because  uttered  upon 
the  most  urgent  solicitation.  Statements  regarding  the  character 
of  a  suitor  or  lover  made  in  answer  to  inquiries  by  one  interested, 
or  when  volunteered  by  one  who  is  under  a  duty  to  make  it  on 
account  of  his  relationship,  are  privileged  if  made  in  good  faith. 
It  should  be  remembered,  however,  that  such  communications  if 
volunteered  will  not  be  protected  merely  on  the  ground  that  the 
parties  making  them  hold  friendly  relations  with  those  to  whom 
the  communications  are  made. 

A  communication  regarding  the  character  of  an  employee, 
made  to  the  employer  or  to  one  about  to  employ  such  person  is 
regarded  in  law  as  a  privileged  communication,  when  made  in 
good  faith  of  course;  and  this  rule  applies  whether  the  informa- 
tion was  voluntarily  given  or  was  in  answer  to  an  inquiry.  How- 
ever, if  such  a  communication  is  made  solely  for  the  benefit  of 
the  informant,  as  for  example,  for  the  purpose  of  compelling  an 
employee  to  pay  a  debt  due  the  informant,  it  is  not  privileged. 
To  dictate  a  libelous  letter  to  a  stenographer  or  confidential  clerk 
subjects  the  party  doing  so  to  an  action  for  damages  whether 
or  not  such  letter  was  ever  transmitted  through  the  mails,  or 
otherwise  delivered  or  published. 

When  a  man  becomes  a  candidate  for  office  his  character 
for  honesty  and  integrity  and  his  qualifications  and  fitness  for 
the  position  are  put  before  the  public,  and  are  thereby  made 
proper  subjects  for  comment.  False  statements  charging  criminal 
or  disgraceful  conduct  are  not,  however,  privileged. 

It  is  a  general  rule  of  law  that  in  all  civil  actions  of  libel 
or  slander,  the  defendant  is  justified  and  exempt  from  all  civil 
responsibility  where  he  alleged  and  established  the  truth  of  the 
matter  charged  as  defamatory;  the  truth  of  the  words  spoken 
or  written  is  a  complete  defense.  Many  of  the  States  have 
enacted  statutes  to  the  effect  that  the  truth  is  a  defense  only 
when  published  without  malice.  In  other  words,  a  man  should 
be  restrained  from  speaking  the  truth  of  another  in  an  obviously 
malicious  spirit,  and  without  any  apparent  justification.  One 
should  be  very  cautious  in  what  one  says  or  writes  of  another, 
and  should  bear  in  mind  that  the  fact  that  he  believes  what  he 
says  to  be  true  is  no  justification  if  the  words  published  are,  as 
a  matter  of  fact,  false,  and  do  not  come  within  the  classes  of 
privileged  communications  above  referred  to.    Furthermore,  it  is 


BUSINESS  CRIMES  411 

no  justification  that  libelous  matter  was  published  first  by  another. 
It  is  unlawful  for  one  to  repeat  information  received  which  is  of 
a  defamatory  nature. 

It  was  pointed  out  that  where  words  are  published  imputing 
to  another  a  crime  or  contagious  disease,  or  which  disparage 
him  in  his  office  or  profession,  the  law  will  presume  that  special 
damage  has  in  fact  resulted  from  their  use.  If,  however,  words 
are  spoken  (not  written)  which  merely  impute  fraud,  dishonesty 
or  vice,  no  recovery  can  be  had  without  proof  of  special  damages. 

The  publication  of  defainatory  words  entitles  the  party 
defamed  to  compensation  for  the  actual  injury  done  him  without 
regard  to  the  motive  with  which  the  publication  was  made.  Want 
of  actual  intent  to  injure  furnishes  no  legal  excuse.  Conse- 
quently it  is  no  legal  defense  that  the  defendant  was  drunk  when 
he  uttered  a  slander  or  that  the  publication  was  the  result  of  an 
honest  mistake. 

An  untrue  statement  disparaging  a  man's  goods,  published 
without  lawful  occasion  and  causing  him  special  damage,  is 
actionable.  This  rule  applies,  although  no  imputatjion  is  cast  on 
the  plaintiff's  private  or  professional  character.  In  a  leading 
case  on  this  point  the  defendants  falsely  published  a  detailed 
analysis  of  the  plaintiff's  artificial  manure  and  their  own,  in 
which  the  plaintiflF's  manure  was  much  disparaged  and  the 
defendants'  extolled.  Special  damage  having  resulted,  the 
Supreme  Court  sustained  the  plaintiff's  right  to  recovery.  Where 
in  another  case  a  man  wrote  falsely  that  what  another  man  sold 
as  Turkish  rhubarb  was  three  parts  brick-dust,  the  party  whose 
goods  were  defamed  was  awarded  damages.  It  is  altogether 
proper  for  a  man  to  commend  his  own  goods  or  to  advertise  that 
he  can  make  as  good  articles  or  even  better  than  any  other  per- 
son in  the  trade.  Competition  between  rival  traders  is  allowed 
to  any  extent,  so  long  as  only  lawful  means  are  resorted  to,  but 
one  should  exercise  care  not  to  make  false  statements  of  the 
goods  or  property  of  another,  for  one  renders  himself  just  as 
liable  if  he  slanders  another's  property  as  if  he  slandered  his 
reputation. 

Every  one  who  requests,  procures  or  commands  another  to 
publish  a  libel  is  as  answerable  as  though  he  published  it  himself. 
One  may  be  liable  for  publishing  a  libel  which  was  composed 
by  another,  but  merely  composing  a  libel  without  publishing  it  is, 
of  course,  not  actionable.  To  utter  defamatory  words  in  a 
foreign  language  is  not  a  publication  if  no  one  present  under- 
stands their  meaning;  but  if  defamatory  words  are  written  in  a 


412  BUSINESS  CRIMES 

foreign  language  there  will  be  a  publication  as  soon  as  ever  the 
writing  comes  into  the  hands  of  anyone  who  does  understand 
that  language,  or  who  gets  them  explained  or  translated. 

A  letter  is  not  a  publication  until  it  is  read  by,  or  in  the 
presence  of,  some  third  person.  If  a  man  receives  a  letter  with 
authority  from  the  author  to  publish  it,  the  person  receiving  it 
will  not  be  justified,  if  it  contains  libelous  matter,  in  inserting  it 
in  the  newspapers.  No  authority  from  a  third  person  will  defend 
a  man  against  an  action  brought  by  a  person  who  has  suffered 
from  an  unlawful  act.  If  the  receiver  of  a  letter  publishes  it 
without  authority  he  is  from  his  own  act  the  wilful  circulator  of 
slander.  The  sending  of  a  letter  containing  libelous  matter  to 
the  party  defamed,  where  no  third  party  hears  or  reads  it,  will 
not  support  a  civil  action.  Sending  a  letter  through  the  mail 
properly  sealed  is  no  publication,  and  the  party  sending  it  is  not 
answerable  for  what  the  receiver  may  choose  to  do  with  it  after 
it  has  once  safely  reached  his  hands.  In  this  connection  a  cer- 
tain case  was  recently  decided  where  the  defendant  knew  that 
the  plaintiff's  letters  were  always  opened  by  his  clerk  in  the  morn- 
ing, and  yet  sent  a  libelous  letter  addressed  to  the  plaintiff,  which 
was  opened  and  read  by  the  plaintiff's  clerk  in  the  usual  course  of 
business;  the  Court  held  that  this  was  a  publication  by  the 
defendant  to  the  plaintiff's  clerk.  Words  spoken  by  a  husband 
to  a  wife  not  in  the  presence  of  any  other  person  do  not  consti- 
tute a  publication  within  the  meaning  of  the  law  of  slander.  The 
maligning  of  the  memory  of  a  deceased  person  is  not  cause  of 
action  for  damages  in  favor  of  his  relatives  where  it  does  not 
affect  their  reputation.  "A  corporation,  although  an  artificial 
person,  may  maintain  an  action  for  defamatory  words  published 
of  it  concerning  the  trade  or  business  in  which  it  may  be  engaged. 
For  words  spoken  of  partners  in  connection  with  their  trade, 
business  or  profession  they  may  sue  jointly. 

Construction. 

Words  are  to  be  understood  in  their  plain  and  natural  import, 
according  to  the  ideas  they  are  calculated  to  convey  to  those  to 
whom  they  are  addressed.  In  ascertaining  the  meaning  of  a 
speaker,  reference  is  made  to  the  words  used  and  the  circum- 
stances under  which  they  are  uttered,  and  the  author  is  presumed 
to  have  used  them  in  the  sense  in  which  their  use  is  calculated  to 
convey  to  the  minds  of  the  hearers.  In  all  cases  of  ambiguity  the 
jury  decides  what  meaning  the  words  would  convey  to  persons  of 
ordinary  intelligence.    It  is  immaterial  whether  a  slander  or  libel 


BUSINESS  CRIMES  413 

be  in  the  form  of  a  question,  whether  the  language  is  ironical, 
figurative  or  allegorical ;  the  insinuation  from  the  words  used  may 
be  indirect  and  the  allusion  obscure,  but  if  the  meaning  of  the 
words  has  injuriously  affected  another,  the  party  guilty  of  such 
slander  or  Irbel  must  pay  the  damages,  even  though  the  defama- 
tory words  be  disguised  in  a  riddle  or  in  hieroglyphic^.  The  in- 
tention of  the  speaker  is  immaterial.  He  may  have  meant  one 
thing  and  said  another;  if  so,  he  is  answerable  for  so  inadequately 
expressing  his  meaning.  If  a  man  in  jest  conveys  a  serious 
imputation  he  jests  at  his  peril. 

Malice  is  an  important  element  in  all  cases  of  libel  and 
slander,  and  may  be  defined  as  any  dishonest  motive  which  induces 
the  defendant  to  defame  the  plaintiff.  The  law  always  presumes 
that  in  the  publication  of  an  article  that  is  libelous  upon  its  face, 
it  was  published  with  malicious  intent.  If  defamatory  words  are 
written  or  spoken  in  the  heat  of  passion  or  under  excitement  pro- 
duced by  the  immediate  provocation  of  the  party  defamed  this  cir- 
cumstance will  be  taken  into  consideration  in  assessing  damages. 
Where  an  apology  is  made  and  defamatory  words  retracted,  it 
does  not  exonerate  the  party  using  such  words  from  liability  in 
damages,  but  such  an  apology  will  be  considered  in  mitigation  of 
damages.  A  minor  over  the  age  of  fourteen  may  be  guilty  of  slan- 
der or  libel.  A  husband  is  liable  for  all  libels  published  or  slander 
uttered  by  his  wife.  A  servant  or  agent  will  be  liable  for  any  slan- 
der uttered  on  his  master's  behalf  or  by  his  master's  orders.  In 
any  suit  for  slander  or  libel  the  plaintiff's  bad  character  may  be 
proved  in  mitigation  of  damages. 

Trespass,  Nuisance,  etc. 

Acts  of  trespass,  nuisance  and  kindred  infractions  of  the 
rights  of  others  happen  almost  daily  in  every  community.  We  will 
therefore  direct  our  attention  briefly  to  an  analysis  of  the  import- 
ant elements  constituting  these  offenses,  a  clear  recognition  of 
which  will  afford  a  valuable  safeguard  to  everyone. 

Any  interference,  however  slight,  which  unlawfully  disturbs 
another  in  the  enjoyment  of  his  property  is  a  trespass.  A  trespass 
may  be  committed  whether  the  injury  is  wilful  or  not,  if  the  in- 
jurious act  is  the  immediate  result  of  the  force  originally  applied 
by  the  defendant,  and  the  plaintiff  is  injured  thereby ;  for  example, 
where  the  defendant  cut  trees  on  his  own  land  and  one  accidentally 
fell  on  the  land  of  the  plaintiff,  the  latter  may  maintain  an  action 
of  trespass.    It  has  been  held,  however,  that  it  is  not  trespass 


414  BUSINESS  CRIMES 

where  an  injury  is  caused  by  an  altogether  unavoidable  accident. 
In  a  leading  case  an  action  of  trespass  was  brought  for  driving 
against  the  plaintiff's  horse  and  injuring  him  with  the  shaft  of  a 
gig;  the  Court  held  that  it  was  a  good  defense  to  this  action  that 
the  horse  was  frightened  by  the  noisy  and  rapid  approach  of  a 
butcher's  cart  and  became  ungovernable,  so  that  the  injury  was 
occasioned  by  an  unavoidable  accident.  Anyone  engaged  in  the 
prosecution  of  a  lawful  act  is  not  liable  for  an  accidental  injury 
occurring  during  the  performance  of  the  act,  when  due  care  and 
precaution  have  been  exercised.  It  is  a  trespass  if  an  injury 
results  by  frightening  another's  horse  by  firing  off  a  g^n,  if 
there  was  reasonable  ground  to  think  that  the  firing  of  the 
gun  might  frighten  the  horse.  In  a  case  recently  decided 
in  Pennsylvania  the  defendant  untied  the  plaintiff's  horse,  and 
removed  him  from  the  posts  to  which  the  owner  had  fastened  him, 
and  which  the  plaintiff's  right  to  use,  if  not  exclusive,  was  at  least 
as  good  as  the  defendant's.  The  Court  held  that  this  act  consti- 
tuted a  technical  trespass,  for  which  the  plaintiff  was  entitled  to 
recover  damages. 

In  an  action  of  trespass  for  entering  plaintiff's  house  and  re- 
moving a  piano,  it  appeared  that  the  plaintiff  had  hired  it  from  the 
defendant  who  claimed  to  remove  it  for  non-payment  of  rent. 
Plaintiff  in  this  case  kept  his  house  locked  against  the  defendant 
and  he  could  not  enter.  In  order  to  effect  an  entrance,  this  sub- 
terfuge was  employed  :  an  insurance  agent,  in  the  employ  of  the 
defendant,  obtained  admission  upon  pretense  of  examining  the 
flues.  Immediately  afterward,  defendant,  with  assistants,  came 
to  the  house.  Plaintiff's  wife  locked  the  front  door  against  them, 
and  requested  the  insurance  agent  to  retire  by  the  back  door ;  in- 
stead of  doing  so  and  against  her  objections,  he  threw  open  the 
front  door, 'and  the  defendant  and  his  aids  entered  and  removed 
the  piano.  Although  the  entrance  had  been  effected  peaceably,  it 
was  done  through  a  deceit  and  the  Court  held  those  removing  the 
piano  liable  in  damages  as  trespassers. 

One  who  aids,  abets  or  incites  in  the  perpetration  of  a  tres- 
pass is  liable  as  well  as  the  direct  perpetrator.  Every  man  is 
liable  for  the  consequences  of  his  wrongful  acts,  even  though  the 
consequences  might  have  been  avoided  by  the  exercise  of  care  on 
the  part  of  the  injured  person,  and  the  liability  is  not  lessened  by 
the  contribution  to  the  result  of  any  extraneous  causes.  A  person 
can  recover  for  the  temporary  interruption  of  his  business  and 
loss  of  time  of  his  workmen  occasioned  by  the  blasting  of  rock  by 
a  contractor  on  a  public  work  in  the  immediate  vicinity  of  the 


BUSINESS  CRIMES  415 

plaintiff's  building  in  such  a  negligent  manner  as  to  throw  pieces 
of  rock  against  the  building,  and  cause  the  plaintiff's  workmen  to 
leave  them  under  a  reasonable  apprehension  of  danger.  If  one 
agrees  to  a  trespass  wkich  has  been  committed  by  another  for  his 
benefit,  trespass  will  lie  against  him  although  the  act  was  not  done 
in  obedience  to  his  command  or  at  his  request.  To  render  one  liable 
for  a  trespass,  it  is  not  necessary  that  he  intended  to  do  the  par- 
ticular injury  which  followed.  In  cases  of  trespass  the  law  looks 
to  the  damage  done  rather  than  to  the  intent.  A  rather  unique 
case  illustrating  the  point  just  stated  was  decided  recently  in  New 
York  State.  In  this  case  the  defendant  ascended  in  a  balloon 
which  came  down  in  the  plaintiff's  garden,  and  a  crowd  of  people 
broke  the  fence  into  the  garden  to  assist  the  defendant  there  in 
peril  from  being  entangled,  and  trod  down  the  vegetables  and 
flowers  in  the  garden.  The  Court  held  that  the  defendant  was 
guilty  of  trespass  and  was  liable  for  all  damages  done  to  the 
garden. 

If  a  person  commits  a  trespass  against  the  person  or  prop- 
erty of  another  under  a  mistake,  however  honest,  he  is  never- 
theless liable  for  damages  to  the  party  injured.  If  a  man  cuts 
down  trees  on  a  church  lot  under  instructions  from  persons  whom 
he  believed  had  the  authority  to  regulate  such  things,  he  is  liable 
for  a  trespass  if  the  persons  from  whom  he  received  his 
instructions  had  no  such  authority.  In  Pennsylvania  the  act  of 
March  29,  1824,  gives  treble  damages  against  "any  person  who 
shall  cut  down  or  fell,  or  employ  any  person  or  persons  to  cut 
down  or  fell,  any  timber,  tree  or  trees  growing  upon  the  land 
of  another,  without  the  consent  of  the  owner  thereof."  An 
important  case  arose  under  this  act  in  which  the  agent  of  A 
entered  into  negotiations  with  B  for  the  purchase  of  certain 
timber  provided  it  stood  on  his  land.  B  had  a  survey  made 
which  by  mistake  showed  the  timber  to  be  upon  his  land,  and 
the  agent  cut  it  down  under  a  contract  of  sale  by  which  he  was 
to  take  it  away  within  three  years.  The  Supreme  Court  held 
that  B  was  liable  to  the  real  owner  of  the  land  on  which  the 
timber  stood. 

A  man's  house  cannot  be  entered  forcibly  for  the  execution 
of  civil  process.  It  may,  however,  be  entered  to  execute  criminal 
process.  Each  part  of  a  house  occupied  in  two  parts  by  two 
families  may  be  a  separate  house  in  the  eyes  of  the  law  if  it  has 
two  entrances.  Everything  in  which  the  law  recogfnizes  property 
may  be  the  subject  of  trespass. 

Trespass  may  be  committed  on  the  highway,  by  anyone  hav- 


4i6  BUSINESS  CRIMES 

ing  the  use  thereof,  against  the  owner  of  the  property  bordering 
on  such  highway,  or  by  such  owner  against  the  public.  The  term 
"highways,"  in  this  connection,  includes  streets,  turnpikes,  roads 
and  railroads.  When  a  highway  is  blocked,  by  reason  of  some 
sudden  or  unexpected  obstruction,  the  public  have  the  right  to 
pass  over  adjoining  property,  to  get  around  the  obstruction,  and 
those  doing  so  are  not  guilty  of  a  trespass. 

Generally  speaking,  adjoining  property  owners  have  a  right 
to  a  reasonable  use  of  the  highway  for  swinging  doors,  windows 
or  overhanging  eaves.  This  right,  however,  is  usually  regulated 
by  local  ordinances.  Where  a  man  owns  land  over  which  others 
have  a  right  of  way,  the  law  gives  him  such  property  in  the 
right  of  way  as  will  support  an  action  of  trespass  on  his  part. 
Where  lots  are  conveyed  by  descriptions  bounding  them  by  an 
alley  with  a  right  of  way  over  the  alley  in  common  with  other 
owners  of  property  abutting  thereon,  the  title  passes,  unless  there 
are  express  words  of  exclusion,  to  the  center  line  of  the  alley, 
subject  to  the  private  right  of  way,  and  for  any  injury  to  the 
soil  or  property  affixed  thereto  the  owner  in  possession  of  the 
adjoining  lot  may  sue  for  a  trespass. 

It  is  not  necessary  that  a  man  should  erect  a  tangible 
boundary  to  his  property  in  order  to  give  him  a  right  to  punish 
anyone  trespassing  thereon.  Trees  on  the  line  and  other  monu- 
ments belong  to  each  of  the  adjoining  owners,  in  the  absence  of 
any  special  agreement  to  the  contrary.  The  Supreme  Court  of 
Pennsylvania  has  decided  that  owners  of  adjoining  land,  with 
a  division  fence  between  them,  built  one-half  by  each,  and  estab- 
lished for  more  than  twenty-one  years,  have  not  such  an  owner- 
ship in  the  materials  of  which  it  is  made  as  will  justify  a  removal 
by  either  of  the  portions  built  by  him,  against  the  consent  of 
the  other,  and  for  such  a  removal  an  action  of  trespass  will  lie. 

Fences  are  part  of  the  freehold,  even  though  they  be 
accidentally  detached  from  the  soil.  A  fence  built  on  the  land 
of  another  belongs  to  him;  if  by  agreement  it  is  built  on  the 
boundary  line,  it  belongs  to  both  the  adjoining  owners. 

Trespass  may  be  committed  by  one  who  enters  the  land  or 
property  of  another  lawfully,  but  while  on  such  another's 
premises  does  some  unlawful  act.  One  doing  so  becomes,  to  use 
a  legal  phrase,  a  trespasser  ab  initio;  in  other  words  he  is  held  to 
be  a  trespasser  from  the  time  he  entered  the  property  of  another. 
Where  an  act  is  lawfully  done  it  cannot  be  made  unlawful 
ab  initio  (from  the  beginning),  unless  by  some  positive  act  in- 
compatible with  the  exercise  of  the  legal  right  to  do  the  first  act. 


BUSINESS  CRIMES  417 

That  is,  the  mere  intention  of  doing  a  subsequent  illegal  act  will 
not  render  the  first  act  unlawful. 

Everything  in  which  the  law  recognizes  property  may  be 
made  the  subject  of  a  t  espass.  A  dog  is  a  species  of  property, 
and  an  action  of  trespass  will  lie  on  the  part  of  the  owner  against 
anyone  injuring  his  dog.  This  principle,  of  course,  applies  in  the 
case  of  all  domestic  animals  or  wild  animals  which  have  been 
reclaimed.  A  person  may  have  a  property  in  bees.  Hiving  or 
enclosing  them  gives  a  man  property  in  them.  It  has  been  held 
that  if  a  swarm  of  bees  fly  from  the  hive  of  the  owner,  his 
property  or  ownership  therein  continues  only  so  long  as  he  can 
keep  them  in  sight,  and  possesses  the  power  to  pursue  them.  The 
owner  may  bring  an  action  of  trespass  against  a  person  who  cuts 
down  a  tree  into  which  the  bees  have  entered  on  the  soil  of 
another  and  takes  the  honey. 

The  authorities  hold  that  in  the  case  of  oysters  planted  by  an 
individual  in  a  bed  clearly  designated  in  a  bay  or  arm  of  the  sea, 
which  is  a  common  fishery,  they  are  the  property  of  the  one  who 
planted  them,  and  who  may  sue  anyone  taking  them  for  a 
trespass. 

It  is  not  necessary  for  the  owner  of  property  to  show  special 
damages  in  order  to  sustain  an  action  of  trespass.  Ordinarily, 
however,  the  measure  of  damages  is  the  actual  value  of  the  prop- 
erty destroyed,  and  such  damages  are  given  as  a  compensation 
to  the  damaged  party  for  the  injury  done.  The  spirit  which 
actuates  a  party  committing  a  trespass  enters  largely  into  the 
question  of  damages.  If  no  perceptible  injury  results  from  a 
trespass,  nominal  damages  only  are  awarded. 

Nuisances. 

Closely  akin  to  the  subject  of  trespass  is  that  of  nuisances. 
The  term  "nuisance,"  which  literally  means  annoyance,  may  be 
legally  defined  as  any  act  which  interferes  with  the  lawful  enjoy- 
ment of  life  or  property  by  another. 

A  public  nuisance  is  an  act  which  affects  the  rights  enjoyed 
by  citizens  as  part  of  the  public,  that  is,  the  rights  to  which  every 
citizen  is  entitled ;  whereas  a  private  nuisance  is  any  damage, 
annoyance  or  detriment  to  the  lands  or  property  of  another  which 
does  not  amount  to  a  trespass.  For  example,  any  unreasonable 
or  unlawful  use  by  a  person  of  his  own  property  which  is  an 
injury  to  another  constitutes  a  private  nuisance. 

To  constitute  the  condition  or  use  of  premises  a  nuisance 
some  legal  right,  public  or  private,  must  exist,  and  some  material 

27 


4i8  BUSINESS  CRIMES 

annoyance,  inconvenience  or  injury  must  result  from  the  invasion 
of  that  right. 

There  must  be  some  such  real  damage  as  a  sensible  person 
if  subjected  to  it  would  find  injurious,  regard  being  had  to  the 
situation  and  mode  of  occupation  of  the  property  injured.  The 
motive  of  a  person  is  immaterial,  for  where  there  is  in  fact  a 
nuisance,  the  person  causing  the  same  is  liable,  although  he  did 
not  act  maliciously  or  with  an  intention  of  annoying  his  neighbors. 
It  may  be  stated  as  a  general  principle  of  law  that  in  order  to 
constitute  a  legal  nuisance  the  act  of  man  must  have  contributed 
to  its  existence,  and  any  injury  which  results  from  natural  causes 
cannot  become  a  nuisance.  Any  unlawful  use  by  a  person  of  his 
own  property  in  such  a  way  as  to  cause  material  injury  to  another 
or  to  the  public  generally  constitutes  a  nuisance.  The  test  applied 
to  determine  whether  a  business  lawful  in  itself  or  a  particular 
use  of  property  constitutes  a  nuisance  is  the  reasonableness  of 
conducting  the  business  or  making  use  of  the  property  complained 
of  in  the  particular  locality,  and  in  the  manner  and  under  the  cir- 
cumstances of  each  particular  case.  A  business  which  might 
be  perfectly  proper  in  a  business  or  manufacturing  neighborhood 
may  become  a  nuisance  when  carried  on  in  a  residential  district. 
In  a  leading  case  it  was  held  that  where  defendant,  a  hotel  prcH 
prietor,  placed  in  his  kitchen  and  used  in  his  business  a  large 
cooking  range,  with  a  shaft  for  hot  air  which  interfered  with 
the  comfort  of  plaintiff's  house,  by  overheating  his  wine  cellar, 
the  plaintiff  was  entitled  to  an  injunction  to  restrain  the  nuisance 
thereby  caused  to  him. 

The  fact  that  a  place  is  a  manufacturing  locality  does  not, 
however,  justify  an  extraordinary  use  of  property,  introducing 
a  serious  annoyance  in  addition  to  those  arising  from  the  ordinary 
use  of  property ;  and  no  matter  how  lawful  a  business  may  be  in 
itself,  or  how  suitable  in  the  abstract  the  location  may  be,  the 
courts  have  held  that  these  circumstances  cannot  avail  to 
authorize  the  carrying  on  of  a  business  which  substantially 
damages  the  property  of  another,  or  causes  unnecessary 
annoyance  to  persons  in  the  vicinity. 

It  should  be  remembered  that  it  is  the  character  of  the 
locality  at  the  time  of  the  annoyance  complained  of  that  governs. 
To  illustrate,  a  locality  which  was  originally  residential  may  have 
lost  that  character  and  become  a  business  or  manufacturing 
neighborhood ;  and,  consequently,  the  annoyance  incident  to  such 
locality  cannot  be  complained  of  by  an  old  resident.  On  the 
other  hand,  the  fact  that  an  offensive  trade  or  use  of  property 


BUSINESS  CRIMES  419 

was  originally  established  in  a  place  remote  from  buildingfs  and 
public  roads  does  not  entitle  the  owner  to  continue  it  in  the  same 
place  after  houses  have  been  built  and  roads  laid  out  in  the 
neighborhood,  to  the  occupants  of  which  and  to  persons  passing 
which  it  is  a  nuisance.  Cases  of  this  character  have  arisen 
frequently,  and  a  business  man  contemplating  the  construction  of 
an  establishment  for  the  operation  of  a  business  should  consider 
the  effect  which  the  nature  of  the  business  will  have  upon  the 
locality  in  which  it  is  situated.  No  definite  rule  can  be  given  to 
govern  all  cases,  as  every  case  must  depend  upon  the  particular 
circumstances  which  characterize  it.  The  Supreme  Court  of 
Pennsylvania,  in  a  comparatively  recent  case,  decided  that  where 
the  defendants  are  charged  with  maintaining  a  public  nuisance  by 
operating  an  oil  refinery  in  a  city,  which  emitted  offensive  vapors, 
and  in  which  were  stored  inflammable  and  dangerous  oils  and 
gases,  the  character  of  the  location  where  the  refinery  was 
established,  the  nature  and  importance  of  the  business,  the  length 
of  time  it  had  been  in  operation,  the  capital  invested  and  the 
influence  of  the  business  on  the  growth  and  prosperity  of  the 
community  are  proper  matters  to  consider  in  determining 
whether  or  not  it  is  a  public  nuisance. 

A  person  who  lives  in  a  city  or  large  town  must  of  necessity 
submit  himself  to  the  consequences  and  obligations  of  the 
occupations  which  may  be  carried  on  in  his  immediate  neighbor- 
hood, which  are  necessary  for  trade  and  commerce  and  also 
for  the  enjoyment  of  property  and  the  benefit  of  the  inhabitants 
of  the  place.  But  although  people  live  in  cities  they  are  entitled 
to  enjoy  their  homes  free  from  damaging  results  by  smoke, 
soot,  etc.,  sufficient  to  depreciate  the  value  of  their  property,  or 
render  their  occupancy  uncomfortable. 

A  business  which,  when  properly  conducted,  would  give 
no  legal  ground  of  complaint  may  become  a  nuisance  through 
being  conducted  in  an  improper  manner  or  carried  on  at 
unreasonable  hours,  so  as  to  cause  unusual  or  unnecessary 
annoyance  to  another.  If  a  particular  use  of  property  causes  a 
nuisance,  this  fact  is  sufficient  to  entitle  a  person  injured  there- 
by to  redress. 

A  nuisance  cannot  be  justified  by  the  existence  of  other 
nuisances  of  a  similar  character,  if  it  happens  that  the 
inconvenience  is  increased  by  the  nuisance  complained  of. 

There  is  a  very  marked  distinction  to  be  observed  in  reason 
and  equity  between  the  case  of  a  business  long  established  in  a 
particular  locality,  which  has  become  a  nuisance  from  the  growth 


420  BUSINESS  CRIMES 

of  population  and  the  erection  of  dwellings  in  proximity  to  it, 
and  that  of  a  new  erection  or  business  threatened  in  such  vicinity. 
It  requires  a  much  clearer  case  to  justify  a  Court  of  Equity  in 
interfering  by  injunction  to  compel  a  person  to  remove  an 
establishment  in  which  he  has  invested  his  capital  and  been 
carrying  on  business  for  a  long  period  of  time,  than  would  be 
required  to  prevent  the  establishment  of  an  objectionable  business 
by  one  who  comes  into  the  neighborhood  proposing  to  establish 
such  a  business  for  the  first  time,  and  who  is  met  at  the  threshold 
of  his  enterprise  by  a  remonstrance  of  the  inhabitants.  If  a 
person  moves  into  a  town  or  neighborhood  where,  by  reason  of 
the  industries  established,  certain  annoyances  prevail,  he  will 
have  no  right  to  restrain  the  continuance  of  such  industries.  It 
has  been  decided  that  the  purchaser  of  land  near  an  existing 
cemetery,  although  aware  that  the  same  is  a  nuisance,  is  not  bound 
to  submit  to  the  nuisance  created  by  an  enlargement  of  the 
cemetery.  Where  a  tenant  knows  of  the  existence  of  a  nuisance 
affecting  the  value  of  property  when  he  leases  it,  he  has  no  right 
thereafter  to  complain  of  it  or  recover  damages  therefor, 
provided  the  nuisance  is  not  increased  during  the  term  of  his 
lease. 

The  mere  fact  that  an  act  is  prohibited  by  law  does  not 
render  the  doing  of  such  act  a  nuisance;  and  where  a  building 
or  structure  is  not  in  itself  obnoxious  or  dangerous,  the  fact  that 
it  is  constructed  in  violation  of  a  city  ordinance  does  not  render 
it  a  nuisance  which  would  entitle  the  owner  of  adjoining  property 
to  obtain  an  injunction. 

The  courts  have  held  that  the  playing  of  the  game  of  base- 
ball is  not  a  nuisance  to  the  owner  of  property  adjoining  the  place 
where  it  is  played.  If  in  conducting  a  baseball  game  spectators 
habitually  trespass  on  the  grounds  of  another,  profane  language 
be  indulged  in,  or  the  property  of  another  be  damaged  by  flying 
balls,  it  is,  of  course,  a  nuisance,  which  may  be  enjoined.  The 
constant  barking  and  howling  of  dogs  is  regarded  as  a  nuisance, 
and  everyone  injured  in  this  manner  may  obtain  relief  by  an 
action  at  law.  A  billiard  or  poolroom  is  not  of  itself  a  nuisance, 
but  may  become  such  where  it  causes  annoyance  and  disturbance 
and  injuriously  affects  property  interests  in  the  vicinity.  A  car- 
pet-cleaning establishment  in  a  thickly-settled  neighborhood  of 
private  residences  is  a  nuisance  when  the  dust  and  moths 
from  it  permeate  the  neighboring  houses.  Blasting  operations, 
excavations  and  the  manufacture  and  storage  of  explosives  are 
nuisances  unless  every  safeguard  (which  a  prudent  man  could 


BUSINESS  CRIMES  '  421 

adopt  to  prevent  injury  to  adjacent  property  owners)  is  used. 
The  placing  of  any  object  on  the  highway  which  is  calculated  to 
frighten  horses  is  a  nuisance  and  may  be  enjoined. 

In  Pennsylvania  it  is  made  a  crime  under  the  act  of  March 
31,  i860,  for  anyone  to  maintain  a  common  or  public  nuisance, 
the  penalty  for  which  is  a  fine  and  imprisonment  or  either,  at 
the  discretion  of  the  Court  under  the  circumstances  of  the  case. 

The  variety  of  acts  and  omissions  which  may  constitute  a 
nuisance  is  so  great  as  to  render  an  enumeration  impossible;  no 
particular  combination  of  sources  of  annoyance  being  necessary 
to  constitute  a  nuisance,  and  the  possible  sources  of  annoyance 
not  being  exhaustively  defined  by  any  rule  of  law. 

The  injury,  or  annoyance,  which  will  warrant  relief  against 
an  alleged  nuisance  must  be  of  a  real  and  substantial  character. 
If  the  injury  or  inconvenience  be  slight  or  trivial  or  fanciful,  or 
one  of  mere  delicacy  or  fastidiousness,  there  is  no  nuisance  in  a 
legal  sense.  Thus  the  law  will  not  declare  a  thing  a  nuisance 
because  it  is  unsightly  or  disfigured,  or  because  it  is  not  in  a 
proper  and  suitable  condition,  or  because  it  is  unpleasant  to  the 
eye  and  a  violation  to  the  rules  of  propriety  and  good  taste ;  the 
law  does  not  cater  to  men's  tastes  or  consult  their  convenience 
merely,  but  only  guards  and  upholds  their  material  rights  and 
shields  them  from  unwarrantable  invasion.  The  question  in  all 
cases  is  whether  the  annoyance  produced  is  such  as  can  materially 
interfere  with  the  ordinary  comfort  of  human  existence. 

The  person  primarily  liable  for  a  nuisance  is  he  who  actually 
creates  it,  whether  on  his  own  property  or  not;  one  who,  either 
by  negligence  or  design,  furnishes  means  and  facilities  for  the 
commission  of  an  injury  to  another  which  could  not  have  been 
done  without  them  is  equally  responsible  with  the  immediate 
wrongdoer,  as  all  are  regarded  as  principals  in  maintaining  a 
nuisance.  Consequently  one  who  merely  contributes  to  the 
creation  of  a  nuisance  is  liable  therefor,  although  it  has  been  held 
that  such  a  person  is  liable  in  damages  only  for  that  injury  or 
loss  which  is  direct  and  proximate  result  of  his  acts.  Anyone 
who  permits  the  establishment  of  a  public  nuisance  upon  prop- 
erty under  his  control  is  liable  therefor.  A  person  cannot  escape 
liability  for  the  maintenance  of  a  nuisance  on  the  ground  that  in 
so  doing  he  acted  only  as  the  agent  of  another. 

If  a  man  erects  a  nuisance  on  his  land,  he  cannot  escape 
liability  for  damages  caused  thereby  by  a  conveyance  of  the 
property;  and  his  liability  extends  to  a  continuance  of  the 
nuisance  subsequent  to  his  conveyance,  where  he  is  shown  to 


422  BUSINESS  CRIMES 

derive  some  benefit  from  its  continuance.  Likewise  one  who 
erects  a  nuisance  on  his  premises  cannot  escape  Hability  by  leas- 
ing the  same ;  and  his  liabiHty  extends  to  the  continuance  of  the 
nuisance  after  the  lease  goes  into  effect.  A  tenant  in  possession  is 
liable  for  a  nuisance  on  the  premises  which  is  due  to  his  act  or 
failure  of  duty,  and  the  landlord  is  not  liable  for  damages  which 
result  from  a  nuisance  which  it  is  the  tenant's  duty  to  remove 
or  repair.  One  who  leases  property  for  a  purpose  which  must 
prove  injurious  or  offensive  to  others  is  liable  for  the  injury 
resulting  therefrom. 

It  is  well  recognized  in  law  that  all  persons  concerned  in  the 
creation  or  commission  of  a  nuisance  are  liable  for  damages. 

Remedies  for  Nuisances. 

The  remedies  for  nuisances  are  threefold;  preventive,  com- 
pensatory and  punitive.  The  first  is  again  divided  into  the 
remedy  by  abatement,  without  process  of  law,  and  by  injunction. 
The  compensatory  remedy  is  an  action  at  law  for  damages,  while 
the  punitive  remedy  is  in  the  nature  of  an  indictment  on  behalf 
of  the  public. 

The  most  efficient  and  flexible  remedy  is  that  of  injunction. 
Under  this  form  the  Court  can  prevent  that  from  being  done 
which  if  done  would  cause  a  nuisance;  it  can  command  the 
destruction  of  buildings  or  the  cessation  of  works  which  violate 
a  neighbor's  rights;  where  there  is  a  disputed  question  of  right 
between  two  parties  the  Court  can  suspend  the  operations  com- 
plained of  until  that  question  is  finally  decided.  Furthermore, 
the  orders  of  the  Court  may  be  either  absolute  or  conditional 
upon  the  fulfilment  by  either  or  both  of  the  parties  of  such  under- 
taking as  appear  to  the  Court  just  in  the  particular  case. 

In  order  to  obtain  an  injunction  against  a  nuisance,  it  must 
be  shown  that  the  injury  complained  of,  as  present  or  impending, 
is  such  as  by  reason  of  its  gravity  or  its  permanent  character 
cannot  be  adequately  compensated  in  damages.  The  injury  must 
be  either  irreparable  or  continuous.  The  remedy  by  injunction 
is,  therefore,  not  appropriate  for  injuries  which  are  temporary 
or  intermittent,  or  accidental  and  occasional,  or  for  an  inter- 
ference with  legal  rights  which  is  trifling  in  amount  and  effect. 
Long  acquiescence  in  the  existence  of  a  nuisance  will  forfeit  the 
right  to  apply  to  a  Court  of  equity  to  stop  the  same  by  an 
injunction. 

A  public  nuisance  does  not  furnish  grounds  for  an  action 
either  in  law  or  equity  by  an  individual  who  merely  suffers  an 
injury  which  is  common  to  the  general  public.     However,  an 


BUSINESS  CRIMES  423 

individual  who  sustains  an  injury  peculiar  to  himself  may  have 
relief  against  a  public  nuisance  and  is  entitled  to  proceed  in 
equity  for  the  abatement  of,  or  an  injunction  against,  such 
nuisance,  or  he  may  maintain  an  action  at  law  for  damages  on 
account  of  the  special  injury  which  he  has  received.  The  number 
of  persons  who  are  specially  injured  by  a  nuisance  does  not  affect 
the  right  of  action  for  such  injury  or  make  their  injury  identical 
with  that  of  the  public  at  large,  but  any  of  such  persons  may 
maintain  an  action  for  the  nuisance,  and  the  fact  that  several 
persons  join  in  a  suit  to  abate  a  public  nuisance  does  not  show 
that  each  of  them  may  not  have  sustained  such  special  injury  as 
entitles  him  to  relief. 

It  is  well  established  that  a  person  who  is  aggrieved  by  a 
private  nuisance  has  the  right  to  abate  the  same  by  his  own  act 
without  instituting  any  legal  proceedings.  On  this  principle  a 
person  may  kill  a  dog  which  haunts  his  premises  and  by  barking 
and  howling  becomes  a  nuisance ;  one  may  cut  off  branches  of  a 
neighbor's  trees  overhanging  his  land,  remove  a  part  of  an  adjoin- 
ing owner's  wall  which  overhangs  his  premises,  or  cut  off  the 
eaves  of  a  building  overhanging  his  property. 

To  justify  a  person  in  abating  a  nuisance  by  his  own  act,  the 
nuisance  must  cause  a  particular  injury  to  his  person  or  property 
at  the  time  when  he  undertakes  to  abate  it.  It  should  be  borne  in 
mind  that  the  remedy  of  abatement  by  the  act  of  the  person 
injured  should  be  resorted  to  within  a  reasonable  time  after  the 
creation  of  the  nuisance,  as  the  right  to  so  abate  may  be  lost  by 
acquiescence  in  the  injury  for  a  considerable  time.  Where  a 
nuisance  can  only  be  abated  by  going  on  the  land  of  another 
person,  from  which  the  nuisance  proceeds,  the  person  desiring  to 
abate  the  same  must  give  previous  notice  to  the  owner  of  the  land 
to  remove  the  nuisance.  Where  one  proposes  to  abate  a  nuisance 
merely  by  doing  acts  upon  his  own  land,  without  trespassing  upon 
the  land  of  his  neighbor,  no  previous  notice  to  abate  the  nuisance 
is  necessary. 

A  person  abating  a  nuisance  must  not  in  so  doing  be  guilty  of 
any  excess,  or  inflict  any  unnecessary  injury.  If  a  person  assumes 
to  be  the  judge  in  the  first  instance  as  to  the  existence  of  a 
nuisance,  when  he  undertakes  to  abate  the  same,  without  leg^l 
proceedings,  he  acts  at  his  peril  and  assumes  all  liability  for 
exceeding  his  legal  right.  Such  a  person  could  be  held  liable  in 
damages  if  it  is  proven  that  what  he  destroyed  was  not  a  legal 
nuisance  so  injuring  him  as  to  g^ve  him  the  right  to  abate  it.  It 
is  consequently  inadvisable  for  any  one  to  attempt  to  personally 
abate  a  nuisance  unless  the  circumstances  of  the  case  relieve  it 


424  BUSINESS  CRIMES 

from  all  doubt.    The  person  responsible  for  a  nuisance  may  be 
held  liable  for  the  expense  of  removing  it. 

Where  there  is  danger  of  irreparable  injury  resulting  from  a 
nuisance,  a  Court  of  equity  may  order  a  preliminary  injunction, 
restraining  the  defendant  from  creating  or  continuing  the  nuisance 
until  complainant's  right  to  relief  can  be  thoroughly  investigated 
and  disposed  of.  If  injuries  result  from  a  nuisance  permanently 
affecting  real  estate  the  measure  of  damages  is  the  difference 
between  what  the  property  would  have  sold  for  before  and  after 
the  injury.  For  nuisances  affecting  health  and  personal  comfort, 
injury  sustained  not  only  by  the  plaintiff,  but  also  by  members  of 
his  family,  whom  he  is  bound  to  support,  is  a  proper  element  of 
damage.  It  is  well  established  that  anything  which  is  authorized 
by  the  Legislature  cannot  be  a  nuisance.  By  this,  however,  a 
public  nuisance  is  meant,  and  there  may  be,  notwithstanding  the 
legislative  authority,  a  private  right  of  action  for  damages.  To 
hold  otherwise  would  be  to  hold  in  effect  that  one's  property 
may  be  taken  without  compensation,  which  is  clearly  contrary  to 
the  Constitution. 

Malicious  Prosecution. 

Public  policy  has  always  favored  prosecutions  for  crimes, 
and  affords  such  protection  to  the  citizen  causing  the  prosecution 
of  another  in  good  faith  and  on  reasonable  grounds  as  is  essential 
to  public  justice,  without  the  sacrifice  of  the  right  of  the 
individual.  Likewise  free  access  to  courts  of  civil  jurisdiction  is 
provided  in  every  State  for  the  administration  of  the  law  of  the 
land.  An  action  for  malicious  prosecution  does  not  lie  merely 
because  a  suit  has  been  brought  either  criminally  or  civilly  and  has 
terminated  unsuccessfully.  However,  the  right  of  one  person  to 
bring  an  action  against  another  has  been  so  seriously  abused  that 
it  has  become  necessary  to  restrict  this  right  in  order  to  safeguard 
individual  liberty.  Consequently  where  either  a  criminal  or  civil 
proceeding  has  been  commenced  or  continued  without  probable 
cause,  but  with  malice,  and  has  terminated  unsuccessfully,  the 
injured  party  may  recover  damages  which  he  has  sustained  to  his 
person,  property,  or  reputation  as  the  result  of  the  wrongful 
institution  of  such  legal  proceedings. 

Elements  of  Action. 

In  order  that  an  action  for  malicious  prosecution  may  be 
maintained  three  elements  must  concur:  (i)  The  motive  of  the 


BUSINESS  CRIMES  425 

party  instituting  the  original  proceedings  must  have  been 
malicious;  (2)  the  suit  or  proceeding  complained  of  must  have 
been  instituted  without  any  probable  cause;  (3)  the  suit  or  pro- 
ceeding must  be  terminated.  Everyone  is  in  duty  bound  to  act 
fairly,  honestly  and  without  malice  toward  every  other  one.  This 
is  a  moral  duty,  but  becomes  a  legal  and  concrete  one  when  the 
machinery  of  the  law  is  called  into  motion.  It  is  for  the  infraction 
of  this  duty  that  the  action  for  malicious  prosecution  lies.  By  the 
term  "malice"  is  meant  any  indirect  motive  of  wrong.  In  a  legal 
sense,  any  unlawful  act  which  is  done  wilfully,  and  purposely  to 
the  injury  of  another,  is,  as  against  that  person,  malicious.  It  is 
an  action  based  upon  an  improper  motive,  and  does  not  neces- 
sarily presuppose  hatred,  ill  will  or  revenge.  It  may  be  a  mere 
wanton  or  careless  disregard  for  the  rights  of  others,  or  the 
doing  of  the  acts  complained  of  without  that  ordinary  prudence 
and  discretion  which  persons  of  sufficient  age  and  sound  mind 
are  presumed  to  have.  If  probable  cause  existed  for  the  bringing 
of  a  legal  action  the  motive  becomes  immaterial. 

As  we  have  seen,  in  order  that  an  action  for  malicious 
prosecution  may  be  maintained,  the  plaintiff  must  show  that  the 
defendant  had  no  probable  cause  for  the  commencement  or 
continuation  of  the  proceeding  complained  of.  Probable  cause 
has  been  defined  as  that  reasonable  ground  of  suspicion  supported 
by  circumstances  sufficiently  strong  in  themselves  to  warrant  a 
cautious  man  in  the  belief  that  the  person  accused  or  sued  is 
guilty  of  the  offense  or  wrong  charged.  It  has  been  held  that 
the  mere  knowledge  and  consent  of  one  partner  that  another 
partner  should  have  a  person  accused  of  defrauding  the  co-part- 
nership arrested  would  not  render  the 'partner,  so  knowing  and 
consenting,  liable  to  an  action  for  malicious  prosecution.  It  is 
necessary  that  the  consent  should  be  of  such  a  character  as  to 
amount  to  advice  and  co-operation.  There  is,  however, 
respectable  authority  holding  to  the  contrary  of  this  rule.  Cor- 
porations are  liable  for  malicious  prosecution  to  the  same  extent 
that  individuals  are  liable  under  similar  circumstances.  It  is 
generally  conceded  that  a  person  who,  after  consulting  counsel 
in  good  standing  and  fully  disclosing  the  facts  of  his  case  within 
his  knowledge,  acts  upon  the  advice  of  such  counsel,  is  not  liable 
in  a  suit  for  malicious  prosecution  for  bringing  such  action.  The 
advice  of  counsel  must,  however,  be  sought  and  followed  in  good 
faith  and  not  as  a  subterfuge.  It  is  no  defense  to  act  under  the 
advice  of  a  justice  of  the  peace  in  suing  another. 


BUILDING  AND  LOAN  ASSOCIATIONS. 

Development — Classification — Method  of  Business — Membership 
— Withdrawals — Termination. 

SO  closely  interwoven  are  building  and  loan  associations  with 
the  business  prosperity  of  the  community  that  it  is  thought 
a  discussion  of  the  legal  principles  regulating  their 
operations  will  be  both  interesting  and  profitable. 

A  building  and  loan  association  is  an  organization  created  for 
the  purpose  of  accumulating  a  fund  from  the  monthly  sub- 
scriptions or  savings  of  its  members  to  assist  them  in  building 
or  purchasing  for  themselves  dwellings  or  other  real  estate,  by 
loaning  to  them  the  requisite  money  from  the  funds  of  the  society, 
upon  good  security.  The  primary  design  of  building  associations 
is  to  encourage  the  acquisition  of  real  estate,  the  building  of 
dwellings,  the  ownership  of  homesteads;  to  increase  the  propor- 
tion of  property  holders  among  that  class  of  the  population 
whose  slow  and  laborious  earnings  are  by  reason  of  their  petti- 
ness most  fugitive,  and  generally  spent  before  they  reach  a  sum 
sufficient  to  back  a  desire  for  those  guarantees  of  good  citizenship 
which  the  policy  of  our  law  has  always  found  in  landed  property. 
That  is  the  class  for  whose  benefit  building  associations  were 
originated;  from  among  whose  number  their  membership  was, 
and  for  the  most  part  is,  still  drawn;  and  all  the  incidents  of 
membership  were  designed  to  accommodate  their  necessities  and 
intended  to  serve  their  purposes. 

The  earliest  authentic  information  regarding  building 
societies  fixes  their  origin  in  Great  Britain  about  the  end  of 
the  eighteenth  or  beginning  of  the  nineteenth  century.  They 
first  appeared  in  the  United  States  about  the  year  1831,  since 
which  time  they  have  multiplied  until  they  now  number  many 
thousands.  The  accumulation  by  the  members  of  a  building  and 
loan  association  of  their  money  by  periodical  payments  into  its 
treasury,  to  be  invested,  from  time  to  time,  in  loans  to  members 
upon  real  estate  for  home  purposes,  is  the  basic  idea  of  the  class 
of  associations  under  consideration.  The  borrowing  members 
pay  interest  and  a  premium  as  a  preference  in  securing  loans  over 
other  members,  and  continue  their  fixed  periodical  installments  in 
addition,  all  of  which  payments,  together  with  the  non-borrowers' 
payments,  including  fines  for  failure  to  pay  such  fixed  install- 

(426) 


BUILDING   AND   LOAN    BOND  AND  MORTGAGE 

I&noto  all  0^cn  bp  tbtiit  ^tzstnta.  That 

(hereinafter  called  the  Obligor     ), 
held  and  firmly  bound  unto 


{hereinafter  called  the  Obligees), 
in  the  sum  of  Dollars, 

lawful  money  of  the  United  States  of  America,  to  be  paid  to  the  said 
Obligees,  their  certain  Attorney,  Successors  or  Assigns.  To  which 
payment  well  and  truly  to  be  made,  do  bind 

Heirs,  Executors  and  Administrators,  and  every  of  them,  firmly  by 
these  presents.     Sealed  with         Seal      .    Dated  the 

day  of  in  the  year  of  our  Lord 

one  thousand  nine  hundred  and 

^^t  ConDition  of  t|)i0  jDblig:ation  i&  mc^.  That  if  the 

above  bounden  Obligor  Heirs,  Executors  and  Adminis- 

trators, or  any  of  them,  shall  and  do  well  and  truly  pay,  or  cause  to 
be  paid,  unto  the  above  named  Obligees,  their  Attorney,  Successors 
or  Assigns,  the  just  smn  of  Dollars, 

such  as  abovesaid,  at  any  time  within  year   from  the  date 

hereof,  together  with  interest  for  the  same  in 

like  money,  payable  montf\Jty,  and  together  vnth  all  fines  imposed  by 
the  Constitution  and  By-Laws  of  the  aforesaid  Association,  and  a 
monthly  premium  of  for  the  same,  in  like  money, 

payable  monthly,  on  the  of  each  and  every  nwnth 

hereafter,  and  shall  alao  well  and  truly  pay,  or  cau^e  to  be  paid,  unto 
the  said  Obligees,  their  Siiceessors  or  Assigns,  the  sum  of 

Dollars,  on  the  said  of  each 

and  every  month  hereafter  as  and  for  the  monthly  contribution  on 

Share       of  the  Capital  Stock  of  the  said 

Obligees,  now  owned  by  the  said  Obligor      ,  without  any  fraud  or 

further  delay;    and  shall  also  deliver  to  the  said  Obligees,   their 

Stuxessors  or  Assigns,  on  or  before  the  day  of 

of  each  and  every  year,  receipts  for  all 

taxes  of  the  current  year  assessed  upon  the 
premises  described  in  the  accompawfing  Indenture  of  Mortgage; 
and  also  from  time  to  time  ami  at  all  times  until  payment  of  the 
said  principal  sum,  keep  the  building 

mentioned  in  the  said  Mortgage  insured  against  loss  or  damage  by 
fire  for  the  benefit  of  the  Mortgagees  in  the  sum  of 

Dollars.  ^tObtDCd,  howcivr,  and  it  is  hereby 
expressly  agreed,  that  if  at  any  time  default  shall  be  made  in  the 
payment  of  the  said  principal  vwney  when  due,  or  of  the  said  interest, 
or  of  the  said  fines,  or  of  tfie  said  nwnthly  premium,  or  the  monthly 
contribution  on  said  Stock,  for  the  sjxice  of  months  after 

any  payment  thereof  shall  fall  due,  or  in  such  delivery  to  tfie  said 


Obligees,  their  Successor  or  Assigns,  on  or  before  the  day  of 

of  each  and  every  year,  of  such  receipts 
for  the  taxes  of  the  current  year  upon  the 

premises  mortgaged,  or  in  the  maintenance  of  such  insurance,  or  if 
the  said  Obligor  shall  not  well  and  truly  pay  or  cause  to  be  paid, 
the  taxes,  on  the  premises  particularly 

described  in  the  Mortgage  accompanying  this  Obligation,  when  the 
same  shall  become  due  and  payable,  and  also  shall  not  well  and 
truly  pay,  or  cav^e  to  be  paid,  all  and  every  such  sum  or  sums  as 
shall  hereafter  be  assessed  by  any  public  authority  upon  the  said 
principal  debt  or  sum,  or  upon  the  interest  thereof,  then  and  in  such 
case,  the  whole  principal  debt  aforesaid  shall,  at  the  option  of  the  said 
Obligees,  their  Successors  and  Assigns,  immediately  thereupon  become 
du£,  payable  and  recoverable,  and  payment  of  said  principal  sum, 
and  all  interest,  and  all  fines,  and  all  monthly  premiums  due  thereon, 
as  well  as  any  contribution  on  said  Share  of 

Stock  then  du£,  may  be  enforced  and  recovered  at  once,  anything 
hereinbefore  contained  to  the  contrary  thereof  notwithstanding.  And 
it  is  hereby  further  agreed,  that  if  the  same,  or  any  part  thereof,  has 
to  be  collected  by  proceedings  at  law,  then  an  Attorney's  fee  of 
per  cent,  shall  be  added  to  and  collected  as  a  part  of  the 
costs  of  such  proceedings,  besides  all  expenses  of  effecting  such 
insurance.     And  the  said  Obligor     for 

Heirs,  Executors,  Administrators  and  Assigns,  hereby  expressly 
waive  and  relinquish  unto  the  said  Obligees,  their  Successors  and 
Assigns,  all  benefit  that  may  accrue  to  by  virtue  of 

any  and  every  law,  made  or  to  be  mad^,  exempting  the  premises 
described  in  tJie  Indenture  of  Mortgage  herewith  given,  or  any  other 
premises  or  property  whatever,  from  levy  and  sale  under  execution, 
or  any  part  of  the  proceeds  arising  from  the^  sale  thereof,  from  the 
payment  of  the  moneys  hereby  secured,  or  any  part  thereof,  and  the 
cost  of  such  action  and  execution;  then  the  above  Obligation  to  be 
void,  or  else  to  be  and  remain  in  full  force  and  virtue. 

$ealel)  anD  DelibercO 

IN    THE    PRESENCE    OF    US: 


To  Esquire,  Attorney  of  the  Court 

of  Common  Pleas,  at  in  the  County  of                        in 

the  State  of  to  any  other  Attorney,  or  to  the 

Prothonotary  of  the  said  Court,  or  of  any  other  Court,  there  or 
elsewhere. 

mibereaisi, 

in  and  by  a  certain  Obligation,  bearing  even  date  herewith,  do      stand 
bound  unto 


in  the  sum  of 
Dollars, 
lawful  money  of  the  United  States  of  America,  conditioned  for  the 
payment  of  the  just  sum  of 
Dollars,  such  as  abovesaid,  at  any  time  within 
year     from  the  date  thereof,  togeOier  with  interest 

for  the  same,  in  like  money,  payable  monthly,  and 
together  with  all  fines  imposed  by  the  Constitution  and  By-Laws  of 
the  aforesaid  Association,  and  a  monthly  j/remium  of 

for  the  same,  in  like  money,  payable  monthly,  on  the 
of   each   and   every    month    thereafter,    and 
should  also  well  and  truly  pay,  or  cause  to  be  paid,  unto  the  said 
Obligees,  their  Successors  or  Assigns,  the  sum  of 

Dollars,  on  the  of  each  and 

every  month  thereafter,  as  and  for  the  monthly  contribution  on 
Share  of  the  Capital  Stock  of  the  said  Obligees, 
now  owned  by  the  said  Obligor  ,  without  any  fraud  or  further 
delay;  and  should  also  deliver  to  the  said  Obligees,  their  Successors 
or  Assigns,  on  or  before  the  day  of  of 

each  and  every  year,  receipts  for  all  taxes  of 

the  current  year  assessed  upon  the  premises  described  in  the  Mortgage 
cuxompanying  said  Obligation,  and  also  from  time  to  time  and  at 
all  limes  until  payment  of  said  principal  sum,  keep  the  building 
mentioned  in  the  said  Mortgage  insured  against 
loss  or  damage  by  fire  for  the  benefit  of  the  Mortgagees  in  the  sum 
of  Dollars. 

Pcobidttl  however,  and  it  is  thereby  expressly  agreed,  that  if  at  any 
time  default  should  be  made  in  the  payment  of  the  said  principal 
money  when  due,  or  of  the  said  interest,  or  of  the  said  fines,  or  of 
the  said  monthly  premium,  or  the  monthly  contribution  on  said  Stock, 
for  the  space  of  months  after  any  paytnent  Viereof  shall  fall 

due,  or  in  such  delivery  to  the  said  Obligees,  their  Siiccessors  or 
Assigns,  on  or  before  the  day  of 

of  each  and  every  year,  of  such  receipts 

for  the  taxes  of  the  current  year  assessed  upon  the  premises  mortgaged, 
or  in  the  maintenance  of  such  insurance,  or  if  the  said  Obligor  shall 
not  well  and  truly  pay,  or  cause  to  be  paid,  tlie 

taxes,  on  the  premises  particularly  described  in 
the  Mortgage  accompanying  said  Obligation,  when  the  same  shall 
become  due  and  payable,  and  also  shall  not  well  and  truly  pay,  or 
cause  to  be  paid,  all  and  every  such  sum  or  sums  as  shoidd  thereafter 
be  assessed  by  any  public  authority  upon  the  said  principal  debt  or 
sum,  or  upon  the  interest  thereof,  then  and  in  such  case,  the  whole 
principal  debt  aforesaid  shoxdd,  at  the  option  of  the  said  Obligees, 
their  Successors  and  Assigns,  immediately  thereupon  become  due, 
payable  and  recoverable,  and  payment  of  said  principal  sum,  and  ali 
interest,  and  all  fines,  and  all  monthly  premiums  due  thereon,  as 
u}ell  as  any  contribution  on  said  Share       of 

Stock  then  due,  might  be  enforced  and  recovered  at  once,  anything 
thereinbefore    contained    to    the    contrary    thereof   notwithstanding. 


And  it  is  thereby  further  agreed,  that  if  the  same,  or  any  part  thereof, 
has  to  be  collected  by  proceedings  at  law,  then  an  Attorney's  fee  of 
per  cent,  should  be  added  to  and  collected  as  a  part  oj 
the  costs  of  such  proceedings,  besides  all  expenses  of  effecting  such 
insurance.     And  the  said  Obligor  for 

Heirs,  Executors,  Administrators  and  Assigns,  thereby  expressly 
waived  and  relinquished  unto  the  said  Obligees,  their  Successors 
and  Assigns,  all  benefits  that  might  accrv£  to  by 

virtue  of  any  and  every  law,  made  or  to  be  made,  exempting  the 
premises  described  in  the  Indenture  of  Mortgage  therewith  given,  or 
any  other  premises  or  property  whatever,  from  levy  and  sale  under 
execution,  or  any  part  of  the  proceeds  arising  from  the  sale  thereof, 
from  the  payment  of  the  moneys  thereby  secured,  or  any  part  thereof: 
'^|)t0t  are  to  desire  and  authorize  you,  or  any  of  you,  to  appear  for 

Heirs,  Executors  or  Administrators, 
in  the  said  Court  or  elsewhere,  in  any  appropriate  action,  tJiere  or 
elsewhere  brought  or  to  be  brought  against 

Heirs,  Executors  or  Administrators,  at  the  suit  of 
the  said  Obligees,  their  Successors  or  Assigns,  on  the  said  Obligation, 
as  of  any  Term  or  Time  past,  present,  or  any  other  subsequent 
Term  or  Time,  there  or  elsewhere  to  be  held,  and  confess  or  enter 
Judgment  thereupon  against  Heirs, 

Executors  or  Administrators,  for  the  sum  of 

Dollars,  lawful  money  of  the  United  States  of 
America,  debt,  besides  costs  of  suit  and  all  expenses  of  effecting 
insurance  as  aforesaid,  by  Non  sum  informatus,  Nihil  dicit,  or 
otherwise,  as  to  you  shall  seem  meet:  and  for  your  or  any  of  your 
so  doing,  this  shall  be  your  sufficient  warrant.  And  do  hereby, 
for  Heirs,  Executors  and  Administrators, 

remise,  release,  and  forever  quit  claim  unto  the  said  Obligees,  their 
certain  Attorney,  Successors  and  Assigns,  all  and  all  manner  of 
Error  or  Errors,  Misprisions,  Misentries,  Defects  and  Imperfections 
whatever,  in  the  entering  of  the  said  judgment,  or  any  Process  or 
Proceedings  thereon  or  thereto,  or  anywise  touching  or  concerning 
the  same. 

3n  Cfllitne00  SSli)ereot,  have  hereunto  set  Hand 

and  Seal      the        day  of  in  the  year  of  our  Lord  one 

thousand  nine  hundred  arid 

Seaim  ann  S>elit)errli  '\ 

IN    THE    PKESENCE    OF    US  I 


BUILDING  AND  LOAN  ASSOCIATIONS  427 

ments,  forfeitures  for  such  continued  failure  of  such  payments, 
fees  for  transferring  stock,  membership  fees  required  upon  the 
entrance  of  a  member  into  the  society  go  into  the  common  fund 
until  such  time  as  that  the  instaUment  payments  and  profits 
aggregate  the  face  value  of  all  the  shares  in  the  association,  when 
the  assets  after  payment  of  expenses  and  losses  are  pro-rated 
among  all  members,  which  in  legal  effect  cancels  the  borrower's 
debt  and  gives  the  non-borrower,  the  amount  of  his  stock. 

Three  Varieties. 

The  building  association  exists  in  three  varieties — the 
terminating,  the  permanent  and  the  serial.  The  first  mentioned  is 
seldom  found  at  the  present  date  and  consequently  will  not  be 
discussed.  The  permanent  building  association  is  a  society  which 
has  not  fixed  any  date  or  specified  result  at  which  it  shall 
terminate.  It  differs  from  a  terminating  society  chiefly  in  the 
fact  that  a  person  may  become  a  member  at  any  time  without 
paying  any  back  subscriptions.  Serial  associations  instead  of 
issuing  all  their  stock  to  the  full  extent  allowed  by  law  at  once 
divide  it  up  into  series  and  issue  each  series  successively,  each 
class  or  series  being  then  treated  to  a  certain  extent  as  a  separate 
association  distinct  from  the  others,  but  with  them  sharing  in  the 
profits  of  the  concern.  Permanent  associations  usually  adopt 
the  serial  plan — that  is,  an  association  is  incorporated  with  a 
specified  capital  (usually  one  million  dollars)  and  the  stock 
divided  into  series.  It  is  provided  by  the  law  of  Pennsylvania 
that  in  dividing  the  capital  stock  into  series  that  no  such  series 
shall  at  any  issue  exceed  in  the  aggregate  five  hundred  thousand 
dollars.  These  series  may  be  issued  monthly,  quarterly  or 
annually,  according  as  the  promoters  think  desirable.  Perpetual 
charters  may  be  obtained  under  the  statute  law  in  most  of  the 
States. 

Two  Classes  of  Members. 

In  the  development  of  building  and  loan  associations  it  was 
seen  that  these  societies  really  consist  of  two  classes  of  members ; 
that  those  who  do  not  care  to  have,  or  have  not  received,  an 
advance  upon  mortgage  security  are  mere  investors,  and  that  it 
matters  little  when  they  commence  investing  or  in  what  amount, 
while  those  to  whom  advances  have  been  made  are  really  debtors 
to  the  society,  and  arrangements  for  enabling  them  to  pay  off 
their  debt  in  various  terms  of  years  according  to  their  convenience 


428  BUILDING  AND  LOAN  ASSOCIATIONS 

would  be  of  advantage  both  to  themselves  and  the  society.  By 
permitting  members  to  enter  at  any  time  without  back  payment, 
and  by  granting  advances  for  any  term  of  years  agreed  upon  a 
continuous  inflow  of  funds  and  a  continuous  means  of  profitable 
investment  of  such  funds  would  be  secured.  The  interest  of 
each  member  of  the  society  would  terminate  when  his  share  was 
realized  or  his  advance  paid  off,  but  the  society  would  continue 
with  the  accruing  subscriptions  of  other  members  employed  in 
making  other  advances.  The  successive  serial  issues  of  stock 
constitutes  its  permanent  feature,  for,  although  the  membership 
of  any  individual  terminates  with  the  series  of  stock  in  which  that 
membership  is  claimed,  yet  the  association  continues  on  until  the 
last  series  is  wound  up. 

In  "The  Working  Man's  Way  to  Wealth"  the  author 
emphasizes  the  advantages  of  the  serial  association  as  follows: 
( I )  That  it  allows  a  person  wishing  to  become  a  member  to  avoid 
back  payments  by  purchasing  stock  in  the  last  series:  (2)  that  by 
loaning  the  surplus  funds  of  the  elder  series  to  the  members  of 
the  younger  a  profitable  investment  can  always  be  insured.  When 
the  fact  is  recalled  that  the  chief  trouble  in  the  successful  working 
of  the  terminating  plan  arises  from  the  difficulty  of  obtaining 
new  members,  owing  to  the  heavy  back  payments  necessary  to 
equalize  them  with  the  first  members  after  the  association  has 
reached  its  third  or  fourth  year,  the  consequent  falling  off  in  the 
number  of  stockholders  by  reason  of  death  or  withdrawal,  and 
the  difficulty  thereby  occasioned  of  finding  proper  investments 
for  the  large  sums  of  money  which  accumulate  upon  the  hands 
of  the  society,  the  immense  practical  importance  of  this  feature 
of  the  serial  system  cannot  be  overestimated. 

Method  of  Business. 

The  par  value  of  the  stock  is  fixed  by  charter  or  by-law 
(usually  two  hundred  dollars  per  share),  and  each  member  of 
the  society  binds  himself  on  becoming  a  member  to  pay  a  sub- 
scription at  stated  intervals,  until  the  amount  in  the  treasury 
produced  by  the  sum  total  of  all  the  subscriptions,  together  with 
the  profits,  is  such  as  will  enable  the  society  to  pay  to  each  member 
on  every  share  of  stock  the  par  value  of  that  share.  Whenever 
the  amount  in  the  treasury  at  any  time  equals  the  par  value  of  one 
or  more  shares,  that  sum  is  put  up  at  auction,  and  that  member 
obtains  the  loan  who  offers  the  highest  premium,  or,  in  other 
words,  agrees  to  accept  the  smallest  sum  at  the  time  of  making 


BUILDING  AND  LOAN  ASSOCIATIONS  429 

the  loan  in  lieu  of  the  par  value  of  his  stock  at  the  final 
distribution. 

The  borrower  continues  a  member  and  gives  adequate 
security  for  the  payment  of  interest  on  his  loan,  together  with 
subscription  and  charges.  On  the  final  distribution  of  the  stock 
those  members  who  have  not  become  borrowers  receive  the  par 
value  of  their  shares  in  cash,  while  borrowing  members  get  back 
their  bonds  and  mortgages  receipted  in  full.  To  secure  prompt 
payment  of  interest  and  dues  a  system  of  fines  and  forfeitures 
is  adopted,  which  at  once  makes  it  the  interest  of  the  member  to 
discharge  his  obligations  to  the  society  and  compensate  the  latter 
for  the  loss  of  the  interest  upon  the  amount  due. 

The  following  illustration,  it  is  hoped,  will  conduce  to  a 
clearer  understanding  of  the  practical  workings  of  a  building  and 
loan  association:  Suppose  that  there  are  a  hundred  men  able 
to  save  five  dollars  out  of  their  monthly  earnings.  They  agree 
for  the  purpose  of  united  action  and  mutual  encouragement  to 
put  their  money  together  upon  fixed  days  every  month,  until 
the  whole  aggregate  shall  be  sufficient  to  pay  to  each  of  the 
hundred  associates  one  thousand  dollars  in  cash.  It  is  clear  that 
if  all  are  prompt  in  their  payments  the  treasure  will  be  ready  for 
division  at  the  end  of  two  hundred  months ;  in  other  words, 
letting  each  monthly  payment  of  one  dollar  represent  a  share  in 
the  common  fund,  each  share  will,  at  the  end  of  two  hundred 
months,  be  worth  a  fixed  par  value  of  $200.  This  period,  how- 
ever, will  be  shortened  if,  after  each  monthly  collection  of  $5CX) 
has  been  made,  that  sum  is  at  once  put  out  at  interest,  upon  some 
safe  investment,  with  the  addition  of  the  interest,  etc.,  accruing 
to  the  fund.  The  distribution  of  $200  to  each  share  may  be 
feasible  in,  say,  one  hundred  and  eighty  months,  when  each 
associate  has,  in  fact,  paid  only  $180  on  each  of  his  five  shares — 
that  is,  has  paid  in  $900  up  to  the  time  when  he  is  entitled  to 
receive  $1,000.  Thus  far,  we  have  only  co-operative  savings  fund, 
the  stated  payments  being  periodical  and  compulsory.  But  the 
persons  who  started  this  association  idea  had  an  object  beyond 
the  mere  saving  of  money;  they  desired  through  it  to  acquire 
houses  or  homes;  when,  therefore,  the  question  of  investing  the 
money  arose,  it  was  found  that  it  might  be  made  the  means  of 
securing  to  some  of  the  members  particularly  anxious  to  become 
their  own  landlords  the  property  upon  which  they  wished  to  build, 
and  the  money  to  defray  the  expenses  of  building,  they  paying  the 
interest  upon  the  amount  loaned  them.  In  this  way  the  money 
which  belonged  to  all  would  assist  the  individual,  and  he,  while 


430  BUILDING  AND  LOAN  ASSOCIATIONS 

he  continued  to  pay  his  installments,  would  in  paying  interest  on 
the  money  advanced  to  him  in  fact  be  paying  it  in  part  to  himself, 
and  would  himself  help  to  hasten  the  day  when  he  would  be 
entitled  to  participate  with  the  others  in  the  distribution  of  the 
common  funds,  his  share  in  which  might  then  at  once  be  devoted 
to  the  extinguishment  of  the  loan  he  had  received.  Thus,  he  could 
get  his  house  perhaps  a  number  of  years  before  his  monthly  pay- 
ments of  five  dollars  could  be  expected  to  amount  to  a  sum 
sufficient  to  pay  for  it ;  and  yet  those  small  payments,  being  kept 
up  by  him,  would  in  time  equal  the  sum  he  had  borrowed,  and 
he  would  have  his  house  free,  virtually  paying  for  it  in  install- 
ments of  five  dollars  monthly  and  the  interest  on  the  amount  he 
had  borrowed.  Such  a  bargain  he  could  get  nowhere  else;  and 
it  stands  to  reason  that  more  than  one  member  should  endeavor 
to  obtain  the  advantage  of  being  able  to  pay  so  gradually  for  his 
house  and  yet  have  it  all  his  very  own.  Hence,  whenever  there 
is  a  sum  of  money  ready  for  investment  there  will  probably  be 
a  number  of  applicants,  and  it  will  be  a  matter  of  embarrassment 
to  know  to  whom  to  give  the  loan.  But  this  awkwardness  is 
again  turned  into  a  source  of  profit.  Among  those  who  apply 
there  will  be  some  to  whom,  for  various  reasons,  the  accommo- 
dation will  be  of  considerably  more  moment  than  to  others.  It 
will  be  worth  more  to  some  than  to  the  rest,  and  this  difference 
will  probably  be  capable  of  expression  in  dollars  and  cents.  The 
loan,  therefore,  is  put  up  at  a  sort  of  auction.  Various  members 
desirous  of  obtaining  it  bid  against  each  other  for  the  preference, 
agreeing  that  they  will  receive  the  sum  offered,  less  the  amount  bid 
by  them.  This  difference  is  called  the  premium,  or  bonus,  which 
he  undertakes  to  pay,  together  with  the  amount  actually  received 
by  him,  the  two  constituting  his  whole  debt,  to  be  discharged  in 
the  same  manner  and  at  the  same  time.  It  is  a  rule  with  build- 
ing societies  that  a  member's  indebtedness  by  loan  shall  not  exceed 
the  paid-up  value  of  the  number  of  shares  he  holds  in  the 
association. 

Sources  of  Profit. 

The  sources  of  profit  relied  upon  by  building  and  loan 
associations  are  interest  on  the  loans  to  members,  premiums  and 
fines.  The  fact  that  the  money  so  obtained  is  at  once  reinvested, 
and  in  like  manner  the  interest  derived  therefrom,  and  so  on, 
enables  the  non-borrowing  member  to  realize  compound  interest 
on  his  subscription ;  while  to  one  wishing  to  become  a  borrower 
the  fact  that  the  loan  can  be  repaid  in  small  monthly  installments, 


BUILDING  AND  LOAN  ASSOCIATIONS  431 

and  that  the  sum  advanced  is  greater  than  private  individuals 
would  be  willing  to  lend  on  the  same  security,  offers  substantial 
advantages.  This  the  association  can  do  without  risk,  since  as 
each  installment  is  paid  the  security  is  by  that  much  increased; 
thus  property  which  at  first  might  well  seem  inadequate  security 
will  at  the  end  of  six  months  be  ample.  To  the  workingfman, 
above  all,  do  these  societies  when  honestly  conducted  commend 
themselves,  in  that  their  management  is  perfectly  democratic,  and 
that  they  have  no  preferred  class  to  share  its  profits,  no  heavy 
sinking  fund  to  create  and  hold  in  reserve  against  possible  con- 
tingencies, and  in  that  it  is  the  only  plan  by  which  he  can  become 
his  own  capitalist  and  create  a  source  of  wealth  from  which  he 
can  supply  all  reasonable  demands,  without  the  aid  or  inter- 
ference of  the  outside  capitalist.  As  Chief  Justice  Sharswood 
said  in  the  course  of  a  Supreme  Court  opinion:  "However  it 
may  be  elsewhere,  Philadelphia  has  become  a  city  of  comfort- 
able homes  for  the  poor  by  means  of  these  organizations." 

At  the  present  time  shares  in  a  building  and  loan  associa- 
tion mature  in  about  eleven  years  and  six  months,  depending 
on  their  conservative  management.  Some  of  these  associations 
have  earned  eleven  per  cent,  profit. 

A  marked  feature  of  a  building  and  loan  association  is  the 
mutuality  of  the  system  upon  which  its  business  is  regulated.  If 
for  example  one  man  lent  another  $800  upon  an  agreement  that 
the  latter  pay  him  $1,000  in  monthly  installments  of  twenty  dol- 
lars in  addition  to  legal  interest  upon  the  amount  received,  the 
contract  would  be  clearly  usurious.  Still  less  inviting  would  the 
arrangement  appear  if  the  obligation  of  the  unhappy  debtor  was 
enforced  by  an  elaborate  system  of  fines  and  forfeitures.  There 
must,  therefore,  be  something  peculiar  to  the  building  association 
loan  by  which  the  debtor  receives  something  in  return  for  the 
liabilities  which  he  assumes,  and  by  which  the  transaction,  though 
apparently  usurious  and  oppressive,  is  really  rendered  equitable 
and  mutual.  The  mutuality  lies  in  the  fact  that  after  the  loan, 
the  borrower  still  retains  his  membership  in  the  association  and 
all  the  rights  and  privileges  belonging  thereto;  he  stands  to  the 
association  in  the  twofold  relation  of  debtor  and  member.  As 
debtor,  he  is  bound  to  pay  premium,  interest  and  dues ;  as  member 
he  has  a  proportionate  interest  to  the  extent  of  his  stock  in  his 
own  payments;  and  whatever  profit  the  association  may  derive 
from  their  future  investment  redounds  to  his  own  advantage  by 
hastening  the  day  of  final  settlement,  and  thereby  shortens  the 
time  during  which  the  pa)rments  must  be  continued.    He  is  inter- 


432  BUILDING  AND  LOAN  ASSOCIATIONS 

ested  in  his  subscriptions  both  at  the  time  of  payment  and  at 
the  final  settlement  and  hence  in  principle,  to  quote  the  expressive 
language  of  Judge  Sharswood:  "The  borrower  at  usury  is  him- 
self also  a  lender  at  usury." 

Having  pointed  out  the  system  under  which  building  and 
loan  associations  are  conducted,  let  us  direct  our  attention  briefly 
to  their  general  powers  and  liabilities. 

Building  associations  possess  all  the  attributes  of  corpora- 
tions. Whether  any  particular  power  is  implied  in  the  charter 
depends  on  whether  its  exercise  would  be  conducive  to  the  accom- 
plishment of  the  legislative  intent  in  creating  the  corporation.  A 
building  and  loan  society  has  no  power  to  make  by-laws  which 
are  inconsistent  with  the  law  of  the  land,  its  charter,  or  the  statute 
under  which  it  was  created.  A  member  is  charged  with  notice  of 
the  association's  by-laws  and  is  bound  by  such  of  them  as  are 
not  repugnant  to  the  rule  just  stated. 

Members  of  a  building  association  are  liable  by  virtue  of 
their  membership  for  subscriptions,  stock  payments  or  dues ;  for 
fines  and  forfeitures,  and  for  contribution  to  the  losses  and 
necessary  expenses  of  the  organization.  This  rule  applies  to  a 
borrower  as  well  as  to  a  non-borrower. 

Membership. 

It  may  be  stated  as  a  general  rule  that  any  person  capable 
of  entering  into  a  contract  may  become  a  member  of  a  building 
association  by  becoming  the  holder  of  its  stock.  In  the  absence 
of  expressed  statutory  authority,  neither  infants  nor  married 
women  can  become  members.  In  Pennsylvania  a  married  woman 
may  become  a  member  of  a  building  and  loan  association.  Cer- 
tificates issued  by  a  building  society,  conforming  to  the  descrip- 
tion of  stock  mentioned  in  the  by-laws,  and  in  the  statute  under 
which  the  society  was  organized,  and  on  which  dividends  are  to 
be  paid  out  of  the  profits,  are  certificates  of  stock,  and  the  holder 
thereof  is  a  member  subject  to  all  the  liabilities  imposed  by  the 
by-laws  or  statutes. 

Failure  of  a  member  to  sign  the  constitution,  if  he  has  acted 
as  a  member  for  a  long  time,  will  not  prevent  the  association 
from  enforcing  a  contract  with  him  which  it  was  authorized  to 
make  with  none  but  a  member.  Independently  of  expressed  statu- 
tory authorization,  a  corporation  cannot  become  a  member  of 
a  building  and  loan  association.  In  most  States,  however,  cer- 
tain corporations  are  permitted  to  become  members.  The  executor 


BUILDING  AND  LOAN  ASSOCIATIONS  433 

or  administrator  of  a  deceased  member  does  not  become  a  mem- 
ber, nor  win  a  suit  brought  by  him  to  enforce  a  liability  of  the 
society  to  the  decedent,  or  an  attempt  to  avail  himself  of  the 
privileges  of  membership,  render  him  such.  If,  however,  he 
takes  advantage  of  a  rule  allowing  him  to  become  a  member,  and 
is  recognized  as  a  member  by  the  association,  the  relationship  is 
created.  In  all  dealings  between  the  association  and  its  members 
the  stock  book  is  evidence  of  membership. 

The  by-laws  regulating  the  rights  and  liabilities  of  members 
differ  to  a  limited  extent  in  the  various  associations,  but  the 
general  principles  are  about  the  same.  A  member  who  is  not 
in  arrears  in  the  payments  of  his  installments  is  entitled  to  a 
loan  on  his  stock,  where  such  loan  has  been  duly  applied  for,  and 
the  association  is  in  funds  properly  applicable  to  that  purpose. 
Each  member  in  good  standing  is  entitled  for  each  share  held 
by  him  to  the  same  amount  of  the  assets.  A  member  may  enforce 
an  accounting  by  the  association  of  profits  where  the  association 
has  abrogated  charter  provisions  to  his  injury  and  without  his 
consent.  A  member  may  sue  the  association  to  restrain  any 
unlawful  action  by  it,  notwithstanding  he  has  pledged  his  stock 
as  collateral  to  a  loan ;  where  each  shareholder  is  entitled  to  one 
vote  for  officers,  every  voter  must  be  the  holder  of  at  least  one 
share  of  stock. 

Subscriptions,  stock  payments  or  dues  may  be  defined  as  the 
fixed  periodical  contributions  upon  each  share  of  stock  held  which 
by  virtue  of  the  original  undertaking  of  membership  in  the  society 
the  holder  thereof  is  liable  to  pay,  whether  he  remains  an  investor 
or  becomes  a  borrower.  The  undertaking  is  absolute  and  the 
misbehavior  of  other  members,  such  as  their  refusal  to  live  up 
to  their  engagements,  their  persistent  and  deliberate  default  in 
the  payment  of  dues,  will  not  excuse  similar  conduct  on  the  part 
of  any  particular  one,  nor  relieve  him  of  his  liability  to  the  asso- 
ciation for  his  stipulated  stock  payments.  In  fact  the  associa- 
tion may  maintain  an  action  of  assumpsit  against  a  member  for 
his  dues,  and  \i  is  not  necessary  that  it  should  give  the  member 
notice  of  his  delinquency.  A  statutory  direction  to  corporations 
generally  to  give  notice  to  members  of  calls  upon  unpaid  sub- 
scriptions dees  not  apply  to  a  corporation  under  whose  by-laws 
the  subscribers  to  its  stock  are  under  a  continuing  requirement 
to  pay  a  periodical  installment  of  a  fixed  amount  on  each  share. 
Hence,  it  has  no  application  to  a  building  and  loan  association. 

The  statutes  in  most  States  regulating  building  and  loan 
associations  generally  g^ve  them  a  lien  upon  the  defaulting  mem- 

28 


434  BUILDING  AND  LOAN  ASSOCIATIONS 

ber's  shares  for  the  amount  of  the  unpaid  installments  and  other 
charges  and  liabilities  of  membership. 

To  secure  the  prompt  payment  of  dues,  fines  are  imposed 
upon  delinquent  members,  and  the  members  may  even  be  made 
liable  to  forfeiture  of  stock.  Fines  may  be  defined  as  impositions 
in  the  nature  of  liquidated  damages  upon  members  neglecting  to 
pay  at  the  proper  time  to  the  society  any  moneys  which  are  due 
to  the  latter  from  them.  They  are  essentially  an  incident  to 
membership  in  the  association,  the  direct  outgrowth  of  the  obli- 
gation resting  upon  every  shareholder,  regularly  and  punctually 
to  pay  the  dues  accruing  periodically  upon  his  stock.  If  a 
member  obtains  a  loan  from  the  association,  not  only  may  his 
mortgage  or  deed  of  trust  be  made  to  secure  the  payment  of  dues, 
but  fines  also. 

Dues  and  fines  are  payable  in  cash,  and  the  treasurer  has  no 
right,  and  cannot  be  authorized  by  the  officers,  to  receive  anything 
but  cash  in  payment  thereof.  The  power  to  impose  fines  depends 
upon  authority  conferred  by  statute,  and  in  the  absence  of  such 
authority  they  cannot  be  enforced,  and  if  paid  by  a  borrower  may 
be  set  off  from  the  amount  due  by  him  to  the  association.  Fines 
cannot  be  collected  at  all  unless  they  are  imposed  by  charter  or 
by-law,  and  when  so  imposed  they  must  be  certain  and  notorious. 
If  the  by-law  imposing  them  admits  of  several  constructions,  the 
Court  will  adopt  that  most  favorable  to  the  member  and  least 
favorable  to  the  association.  Fines  must  be  reasonable  and  a 
second  fine  cannot  be  imposed  for  non-payment  of  the  same  dues, 
and  interest  cannot  be  charged  upon  fines.  The  proper  measure 
of  fines  is  the  real  damage  the  building  association  sustains  from 
the  failure  of  a  member  to  pay  his  dues,  which  damage  is  really 
equal  to  interest  upon  the  amount,  together  with  the  proportion 
coming  to  it  from  the  then  obtainable  premiums  upon  the  sale  of 
money.  The  fines  should  be  slightly  in  excess  of  this,  so  as  to 
make  it  more  profitable  to  the  member  to  pay  promptly  than  to 
lag  behind. 

In  addition  to  fines,  the  rules  of  most  societies  establish  a 
limit  beyond  which  indulgence  cannot  be  claimed  by  derelict  mem- 
bers, by  providing  for  the  forfeiture  of  their  shares,  when  that 
limit  is  exceeded.  Such  rules  not  imposing  too  short  a  period  of 
grace  have  expressly,  upon  general  principles  of  law,  been  held 
reasonable  and  within  the  legal  power  of  building  and  loan 
associations. 

As  in  the  case  of  fines,  so  also  in  the  case  of  forfeitures  it 
is  necessary  that  the  causes  of  their  occurrence  should  be  dis- 
tinctly defined  by  by-law,  and  the  method  of  their  enforcement. 


BUILDING  AND  LOAN  ASSOCIATIONS  435 

as  there  pointed  out,  must  be  exactly  followed.  Forfeiture  of 
stock  is  necessary  forfeiture  of  membership  and  when  it  takes 
place  the  obligation  to  continue  the  payment  of  dues,  the  conse- 
quence and  necessary  incident  of  membership,  is  at  an  end. 

Intimately  connected  with  the  matter  of  forfeitures  of  stock 
on  default  of  members  is  the  question  of  accelerating  payment 
for  a  like  cause.  A  provision  in  a  mortgage  to  secure  an  advance 
that  in  case  of  failure  to  pay  the  prescribed  contribution,  interest, 
dues  or  fines,  for  a  time  specified,  the  whole  sum  advanced, 
together  with  all  dues  and  fines  owing  by  the  mortgagor,  shall 
be  deemed  due,  and  may  be  collected,  is  lawful. 

Every  member,  being  equally  entitled  with  all  the  others  in 
the  direct  ratio  of  his  interest  in  the  society,  to  share  in  the 
common  gains  of  the  enterprise,  is  liable  to  contribute  in  the  same 
proportion  in  which  he  expects  to  profit,  to  the  losses  and 
expenses  incident  to  its  management.  The  Supreme  Court  of 
Pennsylvania  has  held  that  a  member  cannot  evade  such  liability 
by  a  transfer  of  the  stock  without  the  consent  of  the  association, 
nor  can  he  be  allowed  to  withdraw  for  the  purpose  of  escaping 
his  just  proportion  of  the  common  burden.  Nor  is  his  liability 
in  any  way  affected  by  the  fact  that  he  has  become  a  borrower, 
so  long  as  he  still  continues  a  member. 

Ordinarily  a  member  is  entitled  to  transfer  his  stock  by 
assignment,  but  a  by-law  which  provides  that  no  share  shall  be 
transferred  while  any  due  of  any  kind  against  the  owner  thereof 
remains  unpaid  creates  a  lien  upon  the  shares  as  against  the 
stockholder  for  the  indebtedness  against  him. 

Withdrawals. 

The  right  of  withdrawal  from  a  building  and  loan  association 
is  absolute  and  cannot  be  arbitrarily  withheld,  and  where  gfiven 
by  statute  cannot  be  waived  even  by  an  express  declaration  in 
the  certificate.  Before  a  member  can  exercise  this  right,  how- 
ever, he  must  comply  with  the  temis  prescribed  in  the  by-laws 
and  voluntarily  assumed  by  him.  Inasmuch  as  a  member's  rela- 
tion to  the  association  is  essentially  that  of  one  of  a  partnership 
for  a  definite  period  of  time,  entitled  upon  its  expiration  to  the 
profits  upon  his  investment  in  the  enterprise,  his  failure  to  con- 
tinue in  the  concern  is  in  the  nature  of  a  breach  of  contract,  upon 
which  the  loss  of  his  previous  contributions  might  not  unnaturally 
be  held  to  follow.  To  avoid  such  contingency,  therefore,  a  pro- 
vision, as  politic  in  the  interest  of  the  building  association  as  it 


436  BUILDING  AND  LOAN  ASSOCIATIONS 

is  just  and  reasonable  to  its  members,  is  usually  made  an  integral 
part  of  the  scheme,  that  a  member  desiring  to  withdraw  shall  be 
allowed  to  do  so,  with  the  privilege  of  receiving  from  the  society 
the  amount  paid  in  by  way  of  subscription  (after  deducting  all 
fines  and  charges  against  him),  together  with  such  share  of  the 
profits  of  the  association  as  may  appear  just  and  warranted  by 
its  business. 

The  right  to  withdraw  does  not  entitle  the  member  to  an 
account  of  profits,  but  merely  to  a  sum  equal  to  subscriptions 
paid  in,  less  fines  and  legal  charges,  and  to  such  proportionate 
amount  of  the  profits  as  the  by-laws  may  declare.  Acceptance 
of  notice  of  withdrawal  terminates  membership  in  the  association ; 
the  member  at  once  assumes  the  position  of  a  creditor,  and  may 
recover  the  amount  due.  A  prescribed  notice  of  withdrawal  is 
usually  required  by  the  by-laws,  but  such  notice  need  not  be  in 
writing,  unless  expressly  required  so  to  be,  and  it  has  been  held 
that  even  where  required,  the  association  may  waive  a  written 
and  accept  an  oral  notice. 

In  construing  a  by-law  relative  to  withdrawal,  the  Court 
will  lean  toward  the  construction  that  is  most  favorable  to  the 
members.  For  instance,  the  by-laws  of  an  association  provide 
that  in  case  any  member  by  reason  of  sickness,  removal,  or 
through  misfortune  is  unable  to  continue  the  payment  of  his 
subscription,  he  may  give  notice  to  the  secretary  of  an  intention 
to  withdraw  from  the  association ;  and  in  case  the  directors  are 
satisfied  as  to  the  grounds  of  withdrawal  his  whole  amount  of 
subscription  shall  be  returned  except  the  entrance  fee,  and  that 
any  person  wishing  to  withdraw  for  the  above  reason  or  other- 
wise, and  who  shall  have  been  a  member  for  a  certain  length  of 
time  and  be  clear  of  the  books,  shall  be  entitled  to  a  certain 
interest  on  that  amount.  In  such  a  case  the  Court  decided  that 
any  person  having  been  a  member  for  the  time  specified  and  being 
clear  of  the  books  might  withdraw  without  leave  of  the  directors, 
and  was  entitled  to  the  benefits  set  forth  in  the  by-laws.  The 
requirement  of  the  directors'  approval  applies  only  to  those  who 
wish  to  withdraw  for  the  reasons  given  in  the  by-laws  and  who 
have  not  been  members  for  the  specified  time.  In  Pennsylvania, 
under  the  act  of  1859,  a  stockholder  cannot  withdraw  after  the 
stock  has  reached  par,  and  the  association  exists  only  for  pur- 
poses of  liquidation.  The  only  object  of  such  withdrawal  is  to 
gain  the  right  to  sue  immediately  for  the  value  of  the  stock. 
This  would  be  gaining  an  unfair  advantage  which  the  law  does 
not  favor. 


BUILDING  AND  LOAN  ASSOCIATIONS  437 

The  right  to  withdraw  does  not  entitle  the  member  to  an 
account  of  profits,  but  merely  to  a  sum  equal  to  subscriptions 
paid  in,  less  all  fines  and  legal  charges,  and  to  such  proportionate 
amount  of  the  profits  as  the  by-laws  may  declare. 

A  member  who  has  perfected  his  right  to  withdraw  by  com- 
plying in  all  respects  with  the  requirements  of  the  governing 
statute  is  not  estopped  by  a  proviso  that  at  no  time  shall  more 
than  one-half  the  funds  in  the  treasury  be  applied  to  the  demands 
of  withdrawing  stockholders  from  bringing  suit  for  the  recovery 
of  the  amount  due  until  the  treasury  has  funds  sufficient  to  meet 
his  claim.  To  hold  otherwise  would  enable  the  association  to 
defraud  a  member  of  all  benefit  from  his  right  of  withdrawal  by 
keeping  itself  in  a  state  of  insolvency.  The  proviso  merely 
intends  that  the  operations  of  the  society  should  not  be  embar- 
rassed by  having  the  whole  amount  of  its  cash  assets  taken  in 
order  at  once  to  pay  the  withdrawing  stockholders;  and  this 
object  is  amply  served  by  enabling  the  Court  to  restrain  the  plain- 
tiff's execution  in  order  to  give  the  building  association  a  reason- 
able time  to  raise  the  money  without  undue  derangement  of  its 
affairs. 

The  later  decisions  in  Pennsylvania  have  held  that  a  with- 
drawing stockholder  who  held  a  withdrawal  order  from  the 
treasurer  of  the  association  for  the  withdrawal  value  of  his  stock 
was  not  a  creditor  within  the  meaning  of  the  assignment  laws 
governing  assignments  for  the  benefit  of  creditors,  and  was  not 
entitled  to  any  priority  over  other  members.  While  in  a  qualified 
sense  withdrawing  stockholders  may  be  considered  creditors  of 
the  association,  their  rights  as  against  those  with  whom  they  have 
been  associated  are  very  different  from  those  of  general  creditors 
whose  claims  are  based  wholly  on  outside  transactions.  If  the 
association  has  been  prosperous,  they  have  a  right  under  certain 
limitations  and  restrictions  to  demand  and  receive  their  propor- 
tionate share  of  the  accumulated  fund.  But  if  bad  investments 
have  been  made,  or  losses  have  been  sustained  before  actual  with- 
drawal, they  must  bear  their  just  proportion  thereof.  The  right 
of  withdrawal  and  the  extent  to  which  it  may  be  exercised 
presupposes  that  at  least  a  relative  proportion  of  the  assets  will 
remain  for  the  benefit  of  those  who  continue  to  be  active  members 
of  the  association.  After  expenses,  incident  to  the  administration 
of  its  assets,  are  deducted,  the  general  creditors,  if  any,  should 
be  first  paid  in  full,  and  the  residue  of  the  fund  should  be  dis- 
tributed among  those  whose  claims  are  based  upon  the  stock  of 
the  association,  whether  they  have  withdrawn  and  hold  orders 


438  BUILDING  AND  LOAN  ASSOCIATIONS 

for  the  withdrawal  value  of  their  stock  or  not.  Both  classes  are 
equally  meritorious,  and  in  marshalling  the  assets  neither  is 
entitled  to  priority  over  the  other.  The  claims  of  each  are  alike 
based  upon  their  relation  to  the  association  as  members  thereof. 
Orders  issued  to  withdrawing  stockholders  are  merely  evidence 
of  their  interest  in  the  assets  remaining  after  paying  general 
creditors. 

It  is,  however,  a  right  belonging  to  every  member  of  a 
building  and  loan  association,  by  virtue  of  his  membership,  in 
a  proper  case  and  under  proper  circumstances  to  invoke  the 
jurisdiction  of  a  court  of  equity  to  wind  up  the  society  and  thus 
compel  a  settlement. 

Right  to  Receive  Loans. 

The  right  to  receive  a  loan  is  an  essential  incident  of  mem- 
bership, and  arises  from  the  nature  and  objects  of  the  association. 
An  association  having  funds  cannot  refuse  to  lend  them  to  its 
members  in  good  standing  offering  proper  security.  The  power 
to  lend  money  to  members  when  not  expressly  conferred  by 
charter  may  be  implied  from  the  general  object  of  the  association. 
If  a  statute  confers  expressed  power  to  lend  money  to  share- 
holders upon  such  terms  and  conditions  as  may  be  prescribed  by 
the  by-laws,  a  loan  made  otherwise  is  not  ultra  vires. 

The  incidents  of  loans  of  the  character  under  consideration 
are  (i)  stock  payments  or  dues;  (2)  interest;  (3)  fines;  (4) 
premiums;  and  (5)  security. 

Stock  payments  or  dues  are  properly  an  incident  of  mem- 
bership in  every  building  and  loan  association,  and  are  only 
incident  to  a  loan  in  so  far  as  the  security  is  conditioned  upon 
their  continued  payments. 

Interest  is  so  much  an  ordinary  incident  to  a  loan  that  the 
authority  to  loan  implies  the  right  to  take  it.  It  must  be  of  the 
legal  rate,  and  cannot  be  charged  upon  more  than  the  amount 
actually  advanced.  The  interest  reserved  by  a  building  and  loan 
association  upon  an  advance  to  one  of  its  members  ceases  when 
it  is  reimbursed  for  the  advance.  In  many  building  associations 
interest  upon  the  loan  and  stock  payments  are  consolidated  under 
the  name  of  redemption  money  or  dues,  and  formed  in  a  single 
payment.  When  the  dues  have  been  so  united  by  the  by-laws 
their  subdivision  for  the  purpose  of  imposing  separate  fines  for 
the  non-payment  of  each  is  improper. 


BUILDING  AND  LOAN  ASSOCIATIONS  439 

Suits  by  Stockholders. 

A  withdrawing  stockholder  in  a  building  and  loan  association 
can  only  recover  the  withdrawal  value  of  his  stock  under  the 
constitution  and  by-laws  of  the  association,  and  not  its  par  value, 
even  though  it  has  matured.  After  the  maturity  of  the  stock,  a 
stockholder  is  entitled  not  to  the  matured  value  but  to  an  equal 
division  of  the  assets,  less  expenses  and  losses. 

The  Supreme  Court  of  Pennsylvania  has  decided  that  a 
member  cannot  obtain  judgment  against  the  association  for  want 
of  an  affidavit  of  defense,  for  the  value  of  his  shares  merely 
upon  the  strength  of  the  report  of  auditors  that  the  shares  were 
at  par,  and  before  a  meeting  has  been  convened  to  wind  up  and 
make  distribution.  Nor  does  the  report  of  auditors  fixing  the 
value  of  the  shares  entitle'  a  withdrawing  member  to  a  judgment 
to  that  amount  for  want  of  an  affidavit  of  defense,  the  value  of 
the  shares  being  liable  to  a  deduction. 

Building  and  loan  associations  form  no  exception  to  the 
general  principle  that  a  stockholder  as  a  stockholder  cannot  sue 
the  corporation.  If  he  is  not  content  to  await  the  winding  up 
of  the  concern  his  course  is  to  withdraw  and  bring  suit  as  a 
withdrawing  stockholder. 

It  follows  from  this  doctrine  that  payments  upon  stock  are 
not  payments  upon  the  loan  "which  is  a  necessary  consequence 
of  the  fact  that  stock  payments  are  incident  to  membership" ;  that 
is,  that  payments  of  dues  are  not  intended  to  be  applied  as  soon 
as  made  as  partial  payments  to  the  extinguishment  of  the  debt, 
but  are  paid  as  the  capital  of  the  company,  and  paid  alike  by 
those  who  do  and  do  not  take  loans ;  that  the  figure  upon  which 
the  interest  is  to  be  paid,  and  hence  the  amount  of  interest  itself, 
do  not  vary  from  the  time  of  taking  the  loan  until  it  is  finally 
discharged,  and  that  consequently  the  reservation  of  an  unvarying 
amount  of  interest  for  the  whole  period  of  the  loan,  whilst  at  the 
same  time  the  borrowers'  stock  payments  are  going  on,  is  not 
usurious. 

Fines  may  be  imposed  for  non-payment  of  either  subscrip- 
tions or  interest.  As  previously  defined  in  these  pages,  the 
premium  is  a  bonus  charged  to  a  stockholder  wishing  to  borrow, 
for  the  privilege  of  anticipating  the  ultimate  value  of  his  stock, 
by  obtaining  the  immediate  use  of  the  money  his  stock  will  be 
worth  at  the  winding  up.  It  is  in  effect  the  difference  between 
the  par  value  of  the  share  advanced  and  the  amount  actually 
received  by  the  borrower.    It  is  not  a  cash  payment,  which  he  is 


440  BUILDING  AND  LOAN  ASSOCIATIONS 

obliged  to  make  upon  obtaining  his  preference  nor  can  it  properly 
be  said  to  be  a  deduction  made  at  the  time  from  any  money 
belonging  to  him.  It  is  in  substance  the  pecuniary  standard  by 
which  the  value  to  the  member  who  obtains  the  loan,  of  the 
preference  over  other  members  seeking  the  same,  is  determined. 
Since,  however,  in  offering  its  money  to  borrowers,  the  society 
adopts  as  the  basis  of  its  loan  the  par  value  of  its  stock  for 
purposes  of  computation,  the  premium  must  be  treated  as  a 
deduction  and  must  ordinarily  be  a  gross  amount  per  share,  not 
merely  increased  interest.  The  amount  'of  the  premium  must  be 
determined  by  fair  and  open  competition. 

The  weight  of  authority  is  to  the  effect  that  interest  cannot 
be  charged  upon  the  premium. 

It  is,  of  course,  within  the  discretion  of  the  building  asso- 
ciation to  allow  abatements,  discounts  or  remissions  upon  the 
premium  bid  by  an  applicant  for  a  loan  under  specified  conditions. 
Such  is  the  custom  prevailing  in  Pennsylvania. 

The  power  to  loan  money  implies  the  power  to  take  adequate 
security  for  the  repayment  of  the  loan,  and  in  the  absence  of 
expressed  requirement  in  the  statutes  or  charter  that  the  security 
taken  shall  be  such  and  no  other,  building  and  loan  associations 
have  power  to  loan  money  on  the  same  security  as  individuals, 
notwithstanding  their  usual  custom  is  to  require  the  borrower  to 
assign  his  own  stock  as  collateral  to  his  mortgage.  The  mortgage 
or  deed  of  trust  of  a  third  person  may  be  taken  to  secure  a  loan 
to  a  member,  and  a  wife  having  power  to  mortgage  her  separate 
property  for  the  debt  of  her  husband  may  give  a  mortgage  to 
a  building  association  to  secure  a  loan  made  to  him,  and  in  either 
case  the  mortgage  will  stand  for  the  full  extent  of  the  under- 
taking, including  interest,  fines,  dues  and  charges.  In  such  case 
the  association  is  under  no  obligation  to  notify  the  third  person 
of  the  member's  default. 

Such  mortgages  secure  the  payment  of  a  series  of  small  sums 
during  an  indefinite  period  of  time.  Yet  though  the  time  during 
which  the  payments  are  to  be  made  is  not  specified,  there  is  a 
contingency  stated  in  the  mortgage  on  the  happening  of  which 
the  payments  are  to  cease ;  and  its  duration  may  be  ascertained 
by  proof,  or  approximated  with  as  much  certainty  and  exactness 
as  the  duration  of  a  mortgage  securing  an  annuity  for  the  life  of 
a  person.  The  mortgage,  therefore,  is  not  void  for  uncertainty, 
but  a  valid  mortgage  in  law. 

In  case  the  stipulations  for  the  payments  of  dues  and 
interest  are  not  complied  with  by  the  mortgagor,  there  is  a  provi- 


BUILDING  AND  LOAN  ASSOCIATIONS  441 

sion  inserted  for  the  foreclosure  of  the  mortgage  and  sale  of  the 
encumbered  property.  In  such  cases  the  ordinary  course  of 
procedure  in  equity  is  to  take  a  preliminary  account  of  the  actual 
arrears  and  charges  standing  against  the  borrower  up  to  the 
time  of  the  decree,  deducting  the  credits  to  which  the  borrower 
is  erftitled.  If  he  pays  the  amount  thus  found,  the  sale  will  be 
prevented,  and  the  decree  will  stand  against  him  as  security  for 
future  payments.  If  he  refuses  or  neglects  to  pay  them,  the  sale 
must  take  place,  and  the  premises  mortgaged  will  be  discharged 
of  the  encumbrance. 

Mortgages. 

A  mortgage  taken  by  a  building  association  is  security  for 
the  payment  of  money  only  within  the  statute  and  operative  only 
so  far  as  authorized  by  it,  and  by  the  by-laws  of  the  association. 
The  bond  and  mortgage  or  trust  deed  given  by  the  borrower 
evidences  the  terms  of  the  contract  and  cannot  thereafter  be 
varied  without  his  consent. 

There  are  three  classes  of  building  and  loan  association 
mortgages:  those  in  which  the  condition  calls  for  regular  stock 
payments  of  fixed  amounts  and  performance  of  membership 
duties  and  liabilities  generally,  together  with  the  payment  of 
redemption  money  or  interest  on  the  amount  advanced  (being 
frequently  lumped  together  with  stock  payments  under  the  name 
of  dues),  to  the  end  of  the  society's  existence;  those  in  which 
in  addition  the  sum  advanced  is  made  repayable;  and  those  in 
which  the  nominal  amount  of  the  loan,  the  par  value  of  the 
shares,  including  the  premium,  is  made  payable,  with  interest, 
stock  payments,  etc.,  being  stipulated  as  in  other  cases. 

In  the  first  form  the  obligation  is  for  the  payment  of  dues, 
etc.,  solely ;  in  the  second,  the  obligation  is  nominally  for  the 
repayment  of  the  loan,  but  particularly  for  the  payment  of 
monthly  dues  on  the  stock,  and  the  legal  interest  on  the  loan  until 
the  association  is  able  to  divide,  to  each  share  of  stock  held  by 
the  members,  the  sum  of  two  hundred  dollars  ($200),  and  when 
this  result  is  reached,  as  the  association  would  owe  a  borrower 
on  five  shares  of  stock  one  thousand  dollars  ($1,000)  and  the 
borrower  would  also  owe  the  association  $1,000,  one  debt  cancels 
the  other.  The  third  differs  from  the  second  only  in  the  fact  that 
interest  may  be  charged  upon  the  premium  bid,  as  well  as  on  the 
sum  actually  advanced,  which  in  nowise  affects  the  nature  of  the 
transaction. 


442  BUILDING  AND  LOAN  ASSOCIATIONS 

There  is  much  diversity  of  opinion  as  to  the  nature  of  the 
transaction  by  which  a  building  association  loans  or  advances  its 
funds  to  members.  Some  courts  regard  the  transaction  as  a  loan. 
Others  deem  it  to  be  a  dealing  in  partnership  funds.  Others 
hold  it  to  be  an  advance  on  the  stock  which  the  borrower  expects 
to  be  entitled  at  the  termination  of  the  association,  while  others 
consider  it  as  a  sale  by  the  borrower  of  his  shares  of  stock  to  the 
association. 

It  has  been  ruled  that  a  bond  and  mortgage  executed  to  a 
building  association  by  one  of  its  members  to  secure  an  antici- 
pated loan  cannot,  if  the  loan  is  not  made,  be  retained  as  security 
for  items  owing  to  the  mortgagor,  which  were  to  be  deducted 
from  the  gross  amount  of  the  loan  when  made,  where  they  were 
neither  given  nor  received  as  security  for  such  items.  Although 
the  mortgage  provides  that  the  entire  amount  secured  thereby 
shall  become  at  once  due  and  payable  on  default  for  a  specified 
time  in  the  payment  of  interest  and  installments,  the  association 
is  not  compelled  to  act  at  the  expiratfon  of  the  specified  time  in 
order  to  protect  its  rights. 

Where  at  the  time  of  borrowing  it  is  estimated  that  the 
stock  will  mature  and  pay  the  loan  in  a  certain  time  and  a  note 
is  given  payable  in  such  time,  a  mortgage  given  to  secure  such 
note  may  be  foreclosed  at  the  expiration  of  such  time,  even 
though  the  stock  has  not  then  matured. 

Important  Decisions. 

Two  important  decisions  have  been  rendered  by  the  Supreme 
Court  of  Pennsylvania,  which  it  is  of  practical  importance  to 
bear  in  mind.  The  right  of  an  association  taking  an  assignment 
of  a  member's  shares  of  stock  as  collateral  security  for  a  loan, 
for  which  the  member  had  also  given  a  mortgage,  to  appropriate 
such  shares  at  their  maturity  to  the  satisfaction  of  the  loan, 
instead  of  exhausting  the  security  furnished  by  the  mortgage, 
is  not  affected  by  an  attachment  of  the  stock  by  a  judgment 
creditor  of  the  member.  The  other  decision  referred  to  holds 
that  where  a  shareholder  in  a  building  association  has  assigned 
his  stock  to  the  association  as  security  for  a  loan,  which  is  also 
secured  by  a  judgment,  he  may  elect,  on  sale  of  his  real  estate 
by  the  Sheriff,  to  have  the  value  of  the  stock  deducted  from  the 
amount  of  the  judgment  before  such  judgment  is  permitted  to 
share  in  the  proceeds  of  the  real  estate. 

It  is  important  to  understand  clearly  the  rule  adopted  for 


BUILDING  AND  LOAN  ASSOCIATIONS  443 

ascertaining  the  amount  presently  due  upon  a  mortgage  in  case  of 
foreclosure  or  voluntary  redemption.  The  rule  as  followed  in 
most  jurisdictions  requires  the  probable  or  possible  duration  of  a 
society  to  be  approximated  by  proof,  and  the  aggregate  of  all 
the  dues  or  redemption  money  stipulated  for  in  the  mortgage  to 
be  calculated  as  they  would  accrue  during  that  period,  and  the 
whole  amount  thus  found  to  be  charged  against  the  member  as 
a  present  debt  immediately  due,  in  addition  to  all  arrearages  and 
fines.  In  other  jurisdictions  the  same  rule  is  followed  except  that 
when  the  interest  is  lumped  with  stock  payments  there  is  a 
rebatement  of  interest  for  the  time  between  the  repayment  of 
the  loan  and  the  estimated  termination  of  the  society,  so  that  the 
society  will  not  recover  interest  after  that  which  bears  interest,  the 
loan,  has  been  returned  to  its  hands.  The  rule  applies  equally 
to  the  case  of  a  foreclosure  or  a  redemption,  the  only  difference 
being  that  in  the  latter  a  withdrawing  borrower  is  entitled  to 
the  bonus  or  proportionate  share  of  the  profits  allowed  by  the 
governing  statute  or  the  by-laws  of  the  association.  In  Pennsyl- 
vania the  leading  case  so  far  as  it  relates  to  voluntary  repayments 
proceeds  from  the  provisions  of  the  statutes,  and,  as  for  the  rest, 
treats  the  transaction  as  a  loan  which  must  be  repaid,  but  to 
which  the  borrower  may  apply  his  stock  payments  already  made. 

Where  an  association  is  prematurely  dissolved  and  the 
mortgages  of  members  foreclosed,  in  determining  the  amount  due 
the  mortgagors  should  be  allowed  not  only  for  the  sums  paid  by 
them  as  dues,  but  also  for  what  they  paid  as  interest,  while  they 
are  to  be  charged  interest  on  the  sums  advanced  by  the  asso- 
ciation, and  so  from  time  to  time  on  the  balance  of  such  sums, 
after  deducting  therefrom  the  money  paid  by  them  for  dues  and 
interest. 

A  shareholder  can  set  off  as  against  the  amount  due  by  him 
to  the  association  under  the  mortgage  claims  held  by  him  against 
it,  consisting  of  balances  due  from  the  association  to  members 
who  had  withdrawn  from  the  association  and  assigned  by  them 
to  the  mortgagee.  Therefore,  in  striking  an  account  between  the 
association  and  a  borrowing  member  wishing  to  redeem  and 
withdraw,  the  latter  is  to  be  credited  only  with  his  actual  pay- 
ments on  account  of  stock  and  interest,  and  not  with  any  of  the 
profits  thereon  unless  special  statutory  enactments  or  the  by-laws 
of  the  society  allow  him  some  share  of  the  profits.  Otherwise 
for  the  profits,  the  society  is  accountable  only  on  dissolution,  and 
then  only  to  those  who  have  persevered  in  its  membership.  It 
has  been  decided  in  Pennsylvania  that  where  a  mortgage  given  by 


444  BUILDING  AND  LOAN  ASSOCIATIONS 

a  member  of  a  building  and  loan  association  to  it  becomes  divested 
and  payable  in  consequence  of  a  judicial  sale  of  the  mortgaged 
premises  upon  the  member's  decease,  that  the  association  is  bound 
to  make  the  same  allowances  upon  the  mortgage  as  if  the  member 
had  elected  to  pay  off  the  loan  and  withdraw. 

In  ascertaining  the  amount  due  it  has  been  held  that  the 
Court  is  bound  by  the  terms  of  the  mortgage  and  cannot  look 
beyond  the  articles  of  association,  unless  the  latter  are  so  referred 
to  in  the  instrument  as  to  make  them  a  part  of  the  mortgage  or 
call  the  Court's  attention  to  them.  But  the  rule  is  not  to  be  so 
extended  as  to  preclude  the  Court  from  examining  the  articles 
of  association  for  the  purpose  of  determining  when  the  mortgage 
contract  terminated.  It  should  be  borne  in  mind  that  in  serial 
societies  the  rules  above  laid  down  apply  with  this  only  difference, 
that  the  rights  and  liabilities  of  each  member  are  referable,  in 
the  first  instance,  to  the  series  to  which  he  belongs. 

A  sale  of  the  mortgaged  premises  and  application  of  the 
previous  stock  payments  made  by  the  mortgagor  to  the  extin- 
guishment of  the  debt  terminates  the  membership  of  the 
mortgagor  in  the  association,  and  the  obligation  to  continue 
payment  of  dues  in  consequence  of  membership  ceases.  If,  how- 
ever, neither  the  building  association  nor  the  borrower  applies 
the  previous  stock  payments  to  the  extinguishment  of  the  debt, 
and  the  association  collects  the  whole  sum  due  from  the  proceeds 
of  the  sale  of  the  mortgaged  premises  or  upon  voluntary  repay- 
ment, the  whole  debt  undiminished  by  any  stock  payments  is 
returned  to  the  society.  The  stock  remains  intact,  and  the 
member  continuing  to  hold  it  retains  his  membership,  and  is 
entitled  upon  the  final  distribution  to  his  share  in  the  company's 
profits.  In  such  case  his  bond  and  mortgage  remain  in  the  hands 
of  the  association  as  a  subsisting  security  to  insure  the  payment 
of  future  installments  and  liabilities. 

Application  of  Stock  Payments  to  the  Extinguishing  of  the  Debt. 

The  doctrine  is  well  recognized  that  payments  of  dues  upon 
the  stock  are  not  payments  upon  the  mortgage  debt,  and  do  not 
work  an  extinguishment  of  the  mortgage  in  part.  But  the  bor- 
rower by  virtue  of  his  membership  has  a  right  at  any  time  so  to 
apply  them,  and  the  association  holding  a  lien  upon  his  shares  as 
security  for  his  debt  may  in  case  of  default  make  a  like 
application.  But  in  the  latter  case  the  appropriation  by  the  society 
must  be  prompt  and  unequivocal.    By  such  application  on  the  part 


BUILDING  AND  LOAN  ASSOCIATIONS  445 

of  the  borrower  the  stock  is  relinquished  to  the  association  and 
its  value  deducted  from  the  amount  of  the  debt  owing  to  it  and 
its  membership  destroyed.  The  borrower's  representative,  his 
assignee  for  the  benefit  of  creditors,  or  executor  may  also  make 
the  application,  but  in  Pennsylvania  it  has  been  held  that  a 
sheriff's  vendee  of  the  mortgagor  cannot.  When  a  member  bor- 
rows money  from  the  association  and  gives  a  joint  note  of  himself 
and  another  person  for  the  advance,  and  the  borrower's  stock 
being  assigned  to  the  association  as  additional  security,  the  third 
party  has  the  right  to  have  the  stock  sold  first  for  the  debt.  On 
the  other  hand,  the  title  to  the  stock  has  so  far  passed  from 
its  owner  by  the  assignment,  that  a  subsequent  purchaser  cannot 
prevent  the  association  from  applying  the  sums  paid  thereon  in 
extinguishment  of  the  debt.  Where  stock  is  pledged  and  a  mort- 
gage given  for  the  same  debt,  the  mortgagor  has  the  right  to 
insist  as  against  his  assignee  in  bankruptcy  and  an  assignee  of 
the  mortgage  that  the  stock  be  first  sold  to  reduce  the  amount 
of  the  mortgage  lien  and  of  the  mortgagor's  personal  liabilities. 

A  member  who  has  assigned  his  stock  to  a  third  person  as 
collateral  security  for  a  debt,  cannot,  when  sued  upon  his  mort- 
gage to  the  association,  claim  a  credit  for  the  value  of  his  shares. 

As  between  the  association  and  a  second  mortgagor  of  the 
premises,  stock  held  by  the  association  as  collateral  security  will 
be  first  applied  to  the  payment  of  the  amount  due  on  the  mortgage 
to  the  association  before  recourse  is  had  to  the  mortgaged 
premises. 

In  Pennsylvania  there  is  a  class  of  cases  in  which  the  right  of 
applying  the  stock  payments  upon  the  borrower's  stock,  held  as 
collateral  by  the  building  association  to  the  extinguishment  of  the 
debt  also  secured  by  mortgage  in  favor  of  the  same,  seems  to  be 
confined  to  the  original  parties  to  the  transaction,  the  borrower 
and  the  society,  and  in  which  the  right  of  any  third  party  to  com- 
pel the  society  to  so  apply  them  seems  to  be  denied. 

It  has  been  held  in  New  Jersey  that  where  the  building 
association  holds,  besides  a  mortgage  upon  the  borrower's  land, 
an  assignment  of  his  stock  as  collateral  to  his  mortgfage,  and 
releases  the  stock  with  actual  notice  of  the  existence  of  a  sub- 
sequent mortgage  on  the  land,  that  the  prior  mortgage  was,  so  far 
as  the  right  of  the  subsequent  mortgage  was  concerned,  satisfied 
to  the  extent  of  the  value  of  the  stock. 

Membership  in  a  building  and  loan  association,  in  the  absence 
of  some  by-law  to  the  contrary  (which  is  rare),  does  not  entitle 
the  borrower  upon  voluntary  repayment  of  his  loan  to  a  pro- 


446  BUILDING  AND  LOAN  ASSOCIATIONS 

portionate  share  of  the  profits  to  the  time  of  repayment,  and  even 
where  express  provision  exists  in  the  constitution  or  by-laws  a 
defaulting  member  can  claim  no  such  benefit. 

Winding  Up  the  Association. 

The  last  feature  of  building  and  loan  associations  which  we 
shall  discuss  will  be  the  manner  in  which  their  business  is 
terminated. 

Hopeless  insolvency,  rendering  the  accomplishment  of  the 
purposes  of  the  association  impossible,  is  a  good  ground  for  a 
petition  by  members  to  the  Court  for  the  winding  up  of  its  busi- 
ness and  the  appointment  of  a  receiver.  The  insolvency  of  a 
building  and  lo^n  association  is  a  thing  peculiar  to  itself  and 
consists  in  its  inability  not  to  pay  outside  debts  (for  such  a  case 
can  hardly  ever  occur),  but  to  satisfy  the  demands  of  its  own 
members.  Hence  it  has  been  repeatedly  asserted  that  the 
application  must  proceed  from  persons  interested  and  suing  as 
members. 

The  right  to  invoke  the  aid  of  a  Court  of  Equity  for  the 
appointment  of  a  receiver  for  the  purpose  of  winding  up  the 
affairs  of  the  association  arises  where,  in  point  of  fact,  the  time 
has  arrived  when  the  shares,  owing  to  the  past  accumulations  of 
the  business,  are  worth  the  stipulated  par  value  fixed  by  the  char- 
ter. Such  an  application  must  show  that  the  assets  of  the 
association  are  sufficient  to  pay,  over  and  above  the  losses  and 
expenses  and  after  cancellation  of  the  advanced  members' 
securities,  to  every  unadvanced  member  the  par  value  of  his 
stock.  In  ascertaining  the  sufficiency  of  the  corporate  assets  for 
this  purpose  mortgages  held  against  advanced  members  must  not 
be  counted  as  assets.  Whenever  the  assets  of  the  association 
become  equal  to  the  par  value  of  all  its  stock  it  is  ready  to  be 
wound  up.  However,  from  a  practical  standpoint,  as  soon  as  one 
series  are  taken  care  of,  another  series  is  started,  and  thus  this 
form  of  association  becomes  perpetual. 

Whatever  liabilities  the  association  has  lawfully  incurred  are, 
of  course,  protected  upon  dissolution.  Creditors  and  depositors 
are  entitled  to  be  paid  out  of  the  assets  in  priority  to  any  of  the 
members,  and  where  a  member  is  also  a  creditor  or  depositor  he 
is  entitled  to  come  in  upon  the  distribution  of  the  assets  as  such. 


BUILDING  CONTRACT  FOR  BUILDING   DWELLING 

HOUSE 

agreement,  Made  this  day  of  ,  19    , 

between  of  ,  hereinafter  called  the  owner, 

of  the  one  part,  and  and  of  , 

hereiruifter  called  the  builders,  of  the  other  part. 

1.  The  builders  hereby  agree  with  the  said  owner  to  execute 
in  strict  conformity  with  the  several  drawings  and  detailed  specifica- 
tions prepared  by  of  ,  architect,  and  signed  by  him 
as  well  as  by  the  builders,  and  such  further  explanatory  drawings  and 
instructions  as  may  from  time  to  time  be  given  by  the  said  architect  or 
other  architect  for  the  time  being  of  the  said  owner,  duly  appointed 
by  him,  the  several  works  therein  respectively  shown  or  described,  or 
which  may  fairly  be  inferred  therefrom,  in  laying  the  foundations  of 
and  entirely  building  a  private  dwelling-house  on  the  site  of  the  house 
lately  known  as  ,  in  the  town  of  ,  in  the 
county  of  ,  according  to  the  said  drawings  and  speci- 
fications, such  works  to  be  executed  in  the  most  sound,  substantial, 
and  workmanlike  manner,  and  with  the  best  materials  of  their 
respective  kinds,  the  cost  of  which,  with  all  scaffolding,  ladders,  and 
implements  of  every  kind,  is  to  be  borne  by  the  builders,  for  the  sum 
of                   dollars  to  be  paid  to  the  builders  by  the  said  owner. 

2.  The  builders  shall  be  paid  in  the  manner  following,  that  is 
to  say:  when  the  said  architect,  or  such  other  architect  as  aforesaid, 
shall  have  surveyed  the  works  as  they  proceed,  aivi  shall  be  satisfied 
that  the  builders  have  used  due  dispatch  and  executed  such  works  in 
a  sound  and  substantial  manner,  then  the  said  architect,  or  such  other 
architect  as  aforesaid,  shall  from  time  to  time  give  a  certificate  for 
such  sum,  or  sums  of  money  as  he  thinks  the  builders  fairly  entitled  to 
receive  on  account  of  the  work  so  executed. 

3.  Provided,  nevertheless,  that  such  sum  or  sums  of  money  be 
neither  of  a  less  amount  than  dollars,  nor  more  than 

per  cent,  of  the  value  of  the  works  so  executed.  And  the 
said  owner,  for  himself,  his  executors,  administrators,  or  assigns, 
hereby  agrees  with  the  builders,  unthin  days  after  such 


certificate  shall  be  presented  to  him,  or  left  at  his  place  of  abode 
above  mentioned,  to  pay  the  amount  thereof,  and  also  to  pay  the 
balance  of  the  aforesaid  sum  of  dollars  which  may  remain 

due  to  the  builders  on  the  completion  of  the  said  works  within 
months  after  the  said  architect,  or  such  other  architect  as  aforesaid, 
shall  have  certified  that  the  said  works  have  been  completed  to  his 
saiisfaction,  and  that  the  builders  have  complied  with  the  conditions 
of  the  aforesaid  specifications  and  drawings. 

4.  The  builders  further  agree  with  the  said  owner  that  they  will 
finish  the  whole  of  the  said  works  and  deliver  up  the  same  complete  in 
every  respect  according  to  the  full  intent  and  meaning  of  the  said 
drawings  and  specifications,  and  to  the  satisfaction  of  the  said  architect 
or  such  other  architect  as  aforesaid,  on  or  before  the  day  of 

,19  ,  unless  such  day  or  time  shall  be  extended  by 
an  agreement  indorsed  upon  these  presents  and  signed  by  the  parties 
hereto  and  then,  in  such  case,  on  or  before  such  extended  day  or  time; 
and  in  the  event  of  the  builders  failing  so  to  finish  and  deliver  up  the 
said  works,  the  builders  hereby  agree  to  allow  and  pay  out  of  the 
balance  that  may  then  remain  to  them  the  sum  of  dollars 

for  every  week  the  said  works  remain  unfinished  and  undelivered  up 
as  aforesaid  beyond  the  day  or  time  hereinbefore  appointed  for  that 
purpose. 

^itnC00  the  hands  of  the  said  parties. 


ARCHITECTS   AND   BUILDERS. 

Building      Contracts — Architect's     Responsibility — Certificate — 
Sub-Contractor — Sureties — Mechanics'  Liens. 

AMONG  all  the  business  relations  into  which  men  enter  there 
are  few  more  complex  than  those  which  are  sometimes  in- 
volved in  the  construction  of  a  building.  For  instance,  we 
often  see  the  co-operation  of  a  multitude  of  contractors,  journey- 
men and  dealers  in  materials,  under  the  supervision  of  an 
architect,  for  the  owner  of  the  land  on  which  the  building  is 
erected,  who  is  also  the  employer  of  the  architect.  As  the  law  on 
this  subject  is  of  universal  interest,  we  shall  direct  our  attention 
to  a  brief  analysis  thereof. 

An  architect  is  one  whose  business  it  is  to  design  buildings, 
fix  the  thickness  of  their  walls,  the  supports  necessary  for  the 
maintenance  of  them  in  their  proper  position,  and  do  all  other 
necessary  things  in  the  line  of  his  profession  for  the  guidance  of 
builders  in  the  erection  of  buildings.  An  architect  may  be 
employed  in  two  different  ways  to  render  professional  services. 
He  may  be  hired  and  given  salary  payable  by  day,  week,  month 
or  year,  to  perform  certain  duties,  or  he  may  be  simply  engaged 
to  do  a  certain  piece  of  work  either  for  a  fixed  sum,  or,  as  is  more 
usual,  for  a  small  percentage  on  the  cost  of  the  construction 
carried  out  under  his  charge.  His  engagement  to  render  service 
in  either  of  these  ways  forms  the  subject  of  a  contract  between 
him  and  his  employer,  and,  as  it  is  upon  this  contract  that  he 
must  rely  for  obtaining  his  compensation,  he  cannot  be  too  care- 
ful to  have  the  terms  of  the  agreement  clearly  understood  by  both 
parties.  The  nature  and  purpose  of  a  building  contract  is  to 
govern  the  respective  rights,  duties  and  liabilities  of  the  builder 
and  his  employer,  and  of  an  architect  so  far  as  he  is  concerned  in 
the  contract  between  them.  The  general  principles  of  contract 
law  govern  building  contracts  and  our  inquiry  will  be  limited  to 
those  characteristics  applicable  to  this  class  of  contracts  only.**  In 
this  connection  it  should  be  borne  in  mind  that  the  world  builder 
is  used  by  the  courts  as  synonymous  with  contractor. 

Building  Contracts. 

Building  contracts  may  be  entire  or  severable,  and  the  char- 
acter of  the  building  contract  in  this  respect  depends  upon  the 

(447) 


448  ARCHITECTS  AND  BUILDERS 

intention  of  the  parties  to  be  gathered  from  the  circumstances  of 
the  case.  The  contract  may  be  said  to  be  entire  where  the  build- 
ing covered  by  it  is  to  be  completed  before  compensation  may  be 
recovered.  This  is  the  case  even  though  the  amount  to  be  paid 
is  made  up  by  stating  the  estimated  cost  of  each  stage  of  the  work 
separately  and  then  adding  the  same  together,  as  well  as  where 
payments  are  to  be  made  from  time  to  time  as  the  work  pro- 
gresses. A  contract  is  also  entire  where  a  right  is  reserved  to  the 
owner  to  suspend  prosecution  of  work  and  pay  for  the  building 
when  it  has  been  brought  to  a  certain  state  of  completion. 

A  contract  to  build  for  an  entire  sum  payable  on  completion, 
but  providing  that  on  failure  to  complete  the  owner  may  do  so 
at  the  builder's  expense,  has  been  held  to  be  a  severable  contract. 
In  a  recent  Pennsylvania  case  it  was  decided  that  such  a  contract 
is  severable  where  it  provides  for  payment  of  definite  sums  at 
different  periods  before  the  completion  of  the  entire  work. 

The  contract,  whether  entire  or  severable,  may  be  embodied 
in  several  instruments.  Thus  plans  and  specifications,  if  made  a 
part  of  the  contract,  are  essential  factors  in  determining  the  rights 
of  the  parties.  Where  a  contract  did  not  fix  the  amount  of  work 
to  be  done  except  by  reference  to  accompanying  drawings  and 
specifications,  but  the  drawing  and  specifications  actually  annexed 
to  the  contract  did  not  fix  the  amount  of  work,  it  was  held  that  a 
writing,  prepared  by  one  party  and  furnished  to  the  other  to 
estimate  and  bid  thereon,  and  upon  which  he  made  his  proposals, 
which  were  accepted,  which  specified  within  limits  the  amount  of 
work,  was  properly  admitted  in  evidence  as  an  accompanying 
specification. 

In  order  to  constitute  a  valid  building  contract  the  language 
used  must  be  such  that  it  is  possible  to  ascertain  to  a  reasonable 
degree  of  certainty  the  meaning  and  intention  of  the  parties. 
Every  such  contract  must  contain  the  elements  of  mutuality ;  that 
is  to  say,  there  must  be  a  twofold  obligation — the  one  on  the  part 
of  the  builder  to  do  the  work,  and  the  other  on  the  part  of  his 
employer  to  pay  therefor.  For  example,  where  contractors  gave 
plans  and  estimates,  and  the  owner  agreed  to  accept  the  bids,  pro- 
vided certain  alterations  therein  were  made,  saying  that  he  would 
make  a  written  contract  when  he  came  to  the  place  where  the 
building  was  to  be  erected,  upon  which  the  contractors  agreed  to 
make  such  alterations  at  such  time,  and  the  owner  told  the  con- 
tractors that  they  might  consider  that  they  had  the  contract,  but 
recommended  them  not  to  commence  work  until  he  came,  as  he 
expected  to  change  the  plans,  it  was  held  that  the  correspondence 
did  not  constitute  a  contract. 


ARCHITECTS  AND  BUILDERS  449 

Written  Contracts. 

If  the  contract  is  to  be  performed  within  a  year  it  is  not 
necessary  that  it  be  in  writing.  In  consideration  of  the  liability 
of  the  human  memory  to  error,  and  to  prevent  innocent  persons 
from  being  imposed  upon  by  people  professing  to  have  claims 
against  them  founded  on  long- forgotten  conversations,  the  laws 
of  all  civilized  countries  provide  that  no  Court  shall  recogfnize  or 
assist  in  enforcing  any  agreement  for  services  which  are  not  to 
be  performed  within  one  year  from  the  time  of  the  making  of 
the  agreement,  unless  the  agreement  or  some  memorandum  of  it 
shall  be  in  writing  signed  by  the  party  to  be  in  charge,  which  is 
the  one  from  whom  payment  is  sought. 

Many  States  by  statute  require  building  contracts  to  be 
recorded,  otherwise  they  are  void  and  cannot  form  the  basis  of  a 
recovery  of  damages  for  prevention  of  their  performance.  We 
will  consider  this  phase  of  the  subject  under  the  title  of 
Mechanics'  Liens. 

It  is  very  essential  that  all  contracts  to  build  be  not  in  viola- 
tion of  any  building  regulations.  Thus  where  an  ordinance 
requires  that  a  permit  for  building  must  be  obtained,  an  agreement 
between  the  builder  and  owner  to  construct  without  obtaining 
such  permit  is  unlawful  and  cannot  form  the  basis  of  a  civil 
action.  A  contract  to  build  which,  though  lawful  in  its  inception, 
becomes  by  a  change  in  the  law  unlawful  to  fulfil,  is  necessarily  at 
an  end  and  cannot  be  enforced. 

A  provision  in  a  building  contract  has  been  decided  to  be 
valid  which  prohibits  the  builder  from  assigning  any  money  pay- 
able under  the  agreement,  unless  with  the  assent  of  the  owner, 
and  which  authorizes  the  owner  to  notify  the  builder  to  discon- 
tinue the  work  under  contract.  A  contract  may  require  the 
builder  to  tender  the  owner  a  satisfactory  bond  within  a  certain 
time  of  the  execution  of  the  contract.  It  has  been  decided  by  the 
Supreme  Court  of  Pennsylvania,  in  a  decision  just  handed  down, 
that  unless  a  bond  was  furnished  within  the  time  specified  in  the 
contract  the  other  party  thereto  could  rescind.  But  where  they 
have  permitted  work  to  be  done  before  the  bond  is  furnished, 
a  reasonable  time  must  be  given  to  furnish  the  bond  required. 

A  very  common  way  of  engaging  the  services  of  an  architect 
is  through  advertisement.  A  person  or  public  body  wishing  to 
build  advertises  in  the  newspapers  or  sends  out  circulars  inviting 
architects  to  send  in  competitive  designs  and  proposing  certain 
inducements,  usually  in  the  way  of  a  prospect  of  an  employment 

29 


450  ARCHITECTS  AND  BUILDERS 

for  them  to  do  so.  Where  this  is  done,  every  architect  who 
prepares  and  sends  in  designs  in  accordance  with  the  terms  of 
the  circular  is  thereby  made  a  party  to  a  vaUd  contract  between 
himself  and  the  parties  issuing  the  circular  or  advertisement, 
which  he  can  enforce  in  any  Court,  if  the  advertiser  is  responsible 
for  his  actions  or  is  authorized  to  bind  anyone  else.  This  last  is 
an  important  reservation,  and  hence  architects  and  builders  should 
carefully  investigate  the  committees  or  public  officers  who  adver- 
tise for  bids  of  this  kind,  and  satisfy  themselves  of  the 
responsibility  of  the  party  with  whom  they  deal. 

Matters  in  Dispute. 

A  stipulation  is  legal  and  enforceable  by  the  courts,  which 
provides  that  the  certificate  or  decision  of  an  architect,  engineer 
or  other  person  referred  to  shall  be  final  and  conclusive,  with 
respect  to  disputes  concerning  the  meaning  or  construction  of 
drawings  and  specifications,  or  the  quantity  and  quality  of  the 
work  done,  etc.  An  agreement  that  an  architect  or  engineer  shall 
determine  the  fitness  of  material  or  the  sufficiency  of  the  work  is 
a  reference  of  a  matter  in  dispute  to  a  person  fitted  by  special 
knowledge  to  determine  the  facts,  and  it  is  for  the  benefit  of  both 
parties  that  such  facts  be  settled  as  the  work  proceeds,  and  hence 
an  agreement  for  such  arbitrament  will  be  upheld.  A  stipulation 
that  the  engineers  of  a  railroad  company  shall  make  final 
estimates  of  the  quality,  character  and  value  of  the  work  done  by 
a  railroad  contractor  and  that  such  estimates  shall  be  final  and 
conclusive  as  against  the  contractor,  without  further  recourse  or 
appeal,  has  been  held  to  be  invalid  and  cannot  deprive  the  builders 
of  the  right  to  refer  to  the  courts  for  a  redress  of  wrongs  and 
for  the  recovery  of  whatever  may  be  due  them.  The  architect 
to  the  exclusion  of  the  courts  is  not  vested  with  authority  to 
determine  the  questions  as  to  what  delay  there  was  in  completing 
the  work,  and  whether  it  was  caused  by  acts  and  orders  of  the 
owner,  or  was  attributable  to  the  builder,  under  a  provision  that 
changes  may  be  directed  by  the  owner,  and  that  in  case  of  any 
addition  such  further  time  shall  be  allowed  for  completion  of  the 
work  as  the  architect  shall  decide  to  be  reasonable,  and  that  any 
question  arising  during  progress  of  the  work  or  in  settlement  of 
accounts  shall  be  referred  to  the  architect,  whose  decision  shall  be 
binding  on  both  parties. 

Provision  is  frequently  made  in  contracts  of  the  class  under 
consideration  that  no  changes  therein  shall  be  made  without  the 


ARCHITECTS  AND  BUILDERS  451 

consent  of  the  architect  or  engineer,  and  that  their  consent  must 
also  be  had  before  the  builder  can  sub-contract  his  work.  Pro- 
visions of  this  character  are  regarded  as  reasonable  and  will  be 
upheld  by  the  courts. 

Liability  of  Builder. 

Ordinarily  a  builder  who  agrees  to  work  according  to  the 
plan  and  under  the  direction  of  an  engineer  or  architect  is  not 
understood  to  insure  the  sufficiency  of  the  plan  or  undertaking  as 
to  the  scientific  correctness  of  the  specifications  or  the  verbal  or 
written  directions ;  and  he  may  stipulate  against  any  liability  for 
the  correctness  of  the  plan  of  the  work  which  he  is  to  execute. 
On  the  other  hand,  he  may  guarantee  the  perfection  of  a  plan 
or  the  wisdom  of  directions  given  under  the  progress  of  the  work 
by  the  architect  whose  orders  he  is  by  the  terms  of  the  contract 
to  obey.  Since  he  is  bound  for  his  own  skill  and  that  of  his 
workmen,  as  well  as  for  the  sufficiency  of  the  material  which 
he  supplies,  there  is  nothing  unreasonable  in  a  guaranty  that  the 
workmanship  and  the  material  furnished  by  him  should  stand  the 
test  of  a  certain  period  of  time  after  the  completion  and 
acceptance  of  the  work. 

A  guaranty  of  the  roof  of  a  building  for  some  years  against 
ordinary  wear  and  tear  does  not  dispense  with  the  necessity  of 
the  builder  completing  the  roof  according  to  contract,  nor  does 
it  put  the  roof  in  any  position  different  from  the  rest  of  the  work 
as  to  the  necessity  under  another  provision  of  the  contract  for 
a  certificate  that  the  building  is  completed  according  to  the  satis- 
faction of  the  architect. 

It  is  competent  for  the  parties  to  agree  that  the  employer 
may  retain  in  his  hands  money  due  the  builder  out  of  which  to 
meet  the  demands  of  material  and  men,  or  that  money  earned  by 
the  builder  shall  be  retained  until  completion  of  the  work  to 
answer  any  damages  suffered  by  the  owner.  It  has  been  held  that 
a  provision  in  a  building  contract  that  the  owner  shall  hold  a 
certain  percentage  of  the  contract  price  until  the  completion  of 
the  work  is  for  the  benefit  of  the  owner  and  does  not  render  the 
owner  personally  liable  to  a  sub-contractor. 

Very  frequently  before  a  building  or  construction  work  of 
any  kind  is  completed  changes  become  desirable.  Care  should  be 
taken  in  the  original  contract  to  provide  the  manner  in  which 
modifications  or  changes  may  be  made,  if  necessary.  Where  a 
portion  of  a  building  fell  before  the  whole  building  was  finished 


452  ARCHITECTS  AND  BUILDERS 

and  work  was  suspended  because  the  builder  and  owner  could 
not  agree  as  to  who  was  at  fault,  and  subsequently  one  of  the 
builders  made  a  new  contract  to  complete  the  structure,  it  was 
held  that  the  question  of  doubtful  liability  was  sufficient 
consideration  for  the  new  contract. 

It  is  optional  with  the  builder  to  rescind  the  contract  where 
the  employer  prevents  the  builder  from  performing  it,  or  where 
there  is  a  failure  of  the  employer  to  pay  in  accordance  with  his 
contract,  unless  the  builder  is  himself  in  default. 

A  contract  by  advertisement,  that  is  to  say,  one  that  is 
formed  by  a  proposal  or  invitation  on  one  side  and  compliance 
with  its  terms  on  the  other,  has  been  decided  to  be  a  contract  in 
writing,  and,  therefore,  not  subject  to  the  provisions  of  the 
Statute  of  Frauds.  Like  any  other  proposal,  that  made  by  adver- 
tisement or  circular  may  be  revoked  or  modified,  provided  the 
revocation  or  modification  is  made  before  it  has  been  accepted 
by  doing  work  in  accordance  with  it.  In  all  matters  of  this  kind 
the  architect  must  be  sure  that  the  proposal  made  in  the  circular 
letter  of  invitation  is  perfectly  clear,  and  that  his  acceptance  of  it 
by  doing  work  in  accordance  with  it,  is  no  less  clear,  for  the  law 
will  not  do  much  to  help  a  man  who  does  not  perfectly  under- 
stand other  people's  propositions,  or  who  makes  his  own  in  a 
manner  not  easily  comprehended. 

It  is  common,  for  example,  for  building  committees  to  incor- 
porate in  their  circulars  of  invitation  to  architects  conditions 
which  are  incompatible  with  each  other,  as,  for  example,  setting 
a  limit  of  costs  in  one  clause,  and  in  the  others  demanding  an 
amount  of  accommodation  which  cannot  possibly  be  had  for 
anything  like  the  sum  named,  in  such  cases  architects  must  at 
their  peril  obtain  from  the  committee  a  vote,  saying  which 
provision  is  the  one  to  be  complied  with.  It  is  not  sufficient  to 
obtain  an  individual  opinion  from  a  single  member  of  the  com- 
mittee, as  such  an  opinion  does  not  bind  the  committee;  all  the 
architects  who  keep  their  designs  down  to  the  limit  of  costs  are 
liable  to  have  been  rejected  because  they  do  not  give  the  accom- 
piodations  desired,  while  those  who  provide  the  accommodations 
are  equally  liable  to  be  thrown  out  because  the  execution  of  their 
designs  will  cost  too  much.  In  neither  case  will  they  have  any 
redress.  The  committee  having  obtained  all  the  suggestions  and 
information  desired,  is  free  to  engage  any  architect  of  its 
own  choice. 


ARCHITECTS  AND  BUILDERS  453 

An  Architect's  Responsibility. 

The  present  tendency  of  the  law  is  to  separate  the  respon- 
sibility of  the  architect  from  that  of  the  builder,  making  the 
former  liable  only  for  the  consequences  of  what  is  shown  to 
be  lack  of  ordinary  professional  skill  and  care  in  preparing  his 
plans  and  specifications  or  in  supervising  the  work  under  his 
charge.  Within  this  limit  he  is  held  to  a  strict  accountability. 
The  question  of  how  far  the  architect  is  an  agent  for  the  owner, 
and  is  empowered  to  bind  him  by  his  actions  or  decisions,  is 
one  of  extreme  importance.  The  ordinary  contract  between 
owners  and  builders  leaves  this  point  somewhat  indefinite,  and 
architects  frequently  get  into  trouble  through  not  knowing  how 
far  they  are  entitled  to  help  their  employer  without  his  consent. 
The  general  rule  is  that,  whatever  may  be  necessary  to  complete 
an  act  which  an  agent  is  authorized  to  perform  is  included  within 
the  authority  of  the  agent.  Outside  of  the  duties  expressly  men- 
tioned in  the  contract,  architects  are  impliedly  authorized  to  order 
and  to  bind  the  owner  to  pay  for  work  and  materials  which  may 
prove  to  be  necessary  for  securing  the  safety  of  the  building 
under  unforeseen  contingencies,  and  even  in  cases  where  more 
mature  consideration  shows  that  it  is  necessary,  for  the  same 
end,  to  vary  from  the  letter  of  the  original  contract. 

Architects  are  required  to  exercise  reasonable  care  and 
skill  in  the  performance  of  their  work.  They  are  not  bound  to 
possess  the  utmost  skill,  such  as  only  a  few  members  of  any 
profession  attain  to ;  but  they  must  show  what  other  architects 
consider  to  be  a  reasonable  degree  of  professional  knowledge 
and  intelligence.  So  far  as  local  regulations  are  matters  of 
statute  law,  the  architect  is  bound  to  know  them ;  and  would  be 
liable  to  his  employer  for  any  damages  which  might  be  caused 
by  his  neglect  or  ignorance  of  them.  He  is  not  bound  to  be 
familiar  with  the  decisions  of  inspectors  or  referees  in  regard  to 
points  left  indefinite  by  the  statute.  He  must,  however,  use  due 
diligence  in  seeing  that  any  directions  or  decisions  which  may  be 
given  in  regard  to  the  work  with  which  he  is  concerned  are  com- 
plied with,  and  if  extra  work  is  necessary  for  the  purpose,  and 
the  owner  is  not  at  hand  to  give  the  necessary  orders,  the  architect 
not  only  may  but  should  g^ve  them,  and  the  owner  will  be  bound 
to  pay  for  the  work  so  ordered,  while  neglect  by  the  architect  to 
take  the  necessary  steps  in  the  case  of  such  an  emergency  will 
render  him  liable  for  a  claim  on  the  part  of  the  owner  for 
damages  if  subsequent  loss  should  be  occasioned  by  such  neglect. 


454  ARCHITECTS  AND  BUILDERS 

An  architect  must  not  allow  himself  to  be  connected  in  any  way 
with  construction  which  he  knows  to  be  dangerous  or  even 
doubtful. 

The  claim  of  an  architect  for  compensation  for  his  serv- 
ices depends,  both  as  to  the  amount  which  he  can  collect  and 
the  way  in  which  it  is  to  be  collected,  upon  various  circumstances. 
There  are  two  distinct  ways  in  which  an  architect  may  be 
employed.  In  the  first  place  and  by  the  usual  method  he  agrees 
to  render  certain  services,  consisting  commonly  in  preparing 
drawings  and  specifications  for  the  construction  of  a  building  and 
supervising  its  erection.  The  owner  in  return  for  such  services 
promises  to  pay  him  a  definite  sum,  or  more  commonly  a  definite 
percentage  on  the  cost  of  the  structure.  By  the  second  method 
the  architect  is  employed  at  a  fixed  salary.  In  the  case  of 
salaried  architects  they  have  an  advantage  over  those  working  on 
commission  or  for  a  specific  sum  named  in  the  contract  in  that 
they  incur  no  responsibility  for  the  consequences  of  their  own 
carelessness  or  unskilfulness.  An  architect  paid  by  a  fixed  sum 
or  percentage  is  liable  for  damages  caused  to  his  employer  or 
to  the  public  by  his  own  negligence  or  ignorance,  or  that  of  his 
assistants.  But  an  architect  or  other  professional  person  hired 
on  a  salary  is  taken  with  all  his  imperfections,  and  it  is  his 
employers  and  not  himself  who  must  pay  the  bills  for  the  con- 
sequences of  any  lack  of  skill  or  care  on  his  part.  These  con- 
clusions are  based  upon  the  general  theory  of  the  law  of  agency. 

Draftsmen  in  architects'  offices  frequently  work  overtime, 
and  the  question  has  occasionally  been  raised  whether  they  have 
a  legal  right  to  claim  extra  pay  for  doing  so.  The  law  holds 
that  for  extra  services,  voluntarily  performed,  the  person 
employed  cannot  claim  extra  compensation  unless  an  express 
agreement  has  been  made  beforehand  that  such  extra  services 
shall  be  paid  for.  This  is  the  principle  laid  down  in  a  recent 
New  Jersey  case,  where  a  claim  was  made  for  additional  pay  for 
extra  services  performed  during  the  illness  of  the  employer, 
without  promise  on  his  part  to  give  additional  compensation  for 
them. 

Where  no  stipulation  has  been  made  beforehand  as  to  the 
definite  sum  or  percentage  which  shall  be  paid  for  the  architect's 
service,  it  is  usually  supposed  by  the  architect  that  they  are 
entitled  to  collect  compensation  according  to  the  schedule  of  the 
American  Institute  of  Architects.  There  is  never  any  difficulty 
under  such  circumstances  in  obtaining  a  verdict  for  five  per 
cent,  on  the  cost  of  the  building  or  construction,  this  amount 


ARCHITECTS  AND  BUILDERS  455 

being  accepted  by  the  architects  in  all  civilized  countries,  as  well 
as  by  the  public,  as  the  proper  and  reasonable  compensation  for 
the  architect's  services. 

Penalties  and  Liquidated  Damages. 

In  most  building  contracts  provisions  are  made  in  case  of 
default  for  the  payment  of  damages  to  the  injured  party.  In 
this  connection  the  terms  "penalty"  and  "liquidated  damages"  are 
frequently  used  indiscriminately.  Whether  a  sum  agreed  upon 
between  the  parties  to  be  paid  in  the  event  of  a  breach  of  a 
building  contract  is  termed  by  them  a  penalty  or  liquidated  dam- 
ages is  not  controlling  upon  the  question  of  construction,  and 
there  seems  to  be  a  leaning  of  the  courts  against  construing  a 
contract  so  as  to  compel  the  builder  to  pay  the  sum  mentioned 
as  stipulated  damages,  and  a  disposition  to  regard  the  sum  agreed 
to  be  paid  as  a  penalty  to  enforce  performance.  In  Pennsylvania 
the  courts  are  antagonistic  to  enforcing  penalties,  and  where 
possible  regard  the  amount  stipulated  to  be  paid  in  the  case  of 
default  as  liquidated  damages.  The  intention  of  the  parties  and 
the  subject  matter  and  nature  of  the  agreement  are  to  be  con- 
sidered in  determining  the  meaning  of  the  expression,  and  the 
question  whether  the  sum  is  to  be  treated  as  liquidated  damages 
or  a  penalty  must,  where  there  is  nothing  on  the  face  of  the 
contract  which  will  militate  against  the  sum  being  liquidated 
damages,  depend  on  the  evidence.  It  may  be  stated,  however, 
as  a  general  rule  of  law  that  the  sum  fixed  by  the  parties  is 
deemed  to  be  liquidated  damages,  and  can  be  recovered  as  such 
where  the  damage  and  loss  which  may  be  presumed  to  result 
from  non-performance  are  uncertain  and  incapable  of  exact 
ascertainment,  and  where  the  amount  named  is  not  on  the  face 
of  the  contract  out  of  all  proportion  to  the  probable  loss.  Where 
a  sum  has  been  stipulated  as  a  payment  by  the  defaulting  party 
which  is  disproportionate  to  the  probable  damage  it  will  be 
treated  as  a  penalty. 

Abandonment  of  Contracts. 

The  rules  allowing  rescission  or  abandonment  of  contracts 
applies  to  building  contracts  the  same  as  to  other  contracts. 
Thus,  in  a  recent  Pennsylvania  case,  the  contract  stipulated  that 
rock  taken  from  a  necessary  excavation  should  become  the  prop- 
erty of  the  builder  except  such  part  as  should  be  necessary  for 
the  support  and  protection  of  the  work.     It  was  decided  that 


456  ARCHITECTS  AND  BUILDERS 

the  fact  that  another  person  through  whose  property  a  portion 
of  the  structure  ran,  would  not  permit  the  builder  to  sell  rock 
removed  from  such  portion  and  did  not  entitle  the  builder  to 
rescind  the  contract,  as  a  right  to  sell  the  rock  did  not  occur 
until  the  contract  was  completed. 

It  is  optional  with  the  builder  to  rescind  the  contract  where 
the  employer  prevents  the  builder  from  performing  it,  or  where 
there  is  a  failure  to  pay  in  accordance  with  the  contract  unless 
the  builder  himself  is  in  default.  A  builder  is  liable  to  have  his 
contract  terminated  where  he  has  violated  it  in  any  material 
part,  as  where  he  fails  to  complete  it  within  the  time  specified 
or  where  the  material  furnished  is  defective.  The  right  to 
annul  a  contract  for  non-performance  by  the  builder  is  lost, 
where  the  employer  is  in  default  by  failure  to  estimate  and  pay 
for  work  done  and  material  furnished  by  the  builder.  Further- 
more any  misrepresentation  or  fraud  practiced  upon  either  party 
may  be  a  ground  for  rescission  by  the  other,  provided  the  fraudu- 
lent representation  is  as  to  a  matter  material  to  the  contract  and 
one  in  the  absence  of  which  the  contract  would  not  have  been 
made.  Likewise  where  the  contract  is  entered  into  as  to  a 
material  matter,  the  party  affected  thereby  may  be  relieved  in 
equity  from  his  obligation.  What  constitutes  fraud,  misrepre- 
sentation and  mistake  has  previously  been  considered  under  the 
subject  of  contracts. 

A  building  contract  may  be  mutually  rescinded  or  aban- 
doned. The  exercise  of  a  right  to  rescind  a  building  contract 
must  be  signified  in  an  unqualified  manner  with  proper  notice  to 
the  party  to  be  affected  thereby  and  within  a  reasonable  time. 
Where,  as  in  one  case,  the  builder  did  the  work  required  to  earn 
the  first  installment  on  a  contract  price  for  building,  which  was 
paid  to  him,  and  in  consequence  of  a  dispute  refused  to  go  on 
with  the  contract  and  discontinued  working,  but  afterwards  the 
owner  gave  the  builder  a  statement  agreeing  to  submit  their 
mutual  claims  to  an  arbitrator  and  agreed  with  the  builder  that 
his  execution  of  the  statement  should  relieve  him  from  further 
performing  the  contract,  and  both  the  employer  and  builder 
signed  the  statement,  the  law  holds  that  the  employer  accepted 
the  abandonment.  Where,  however,  as  in  another  case,  the 
owner  notified  the  builder  that  he  would,  at  the  expiration  of  a 
certain  time,  himself  complete  the  building  if  the  builder  did 
not,  and  the  builder  informed  the  owner  that  he  would  proceed 
as  soon  as  he  could  obtain  certain  material  and  then  notified  the 
owner  that  he  could  not  secure  the  material,  but  that  he  would 


ARCHITECTS  AND  BUILDERS  457 

send  some  men  to  finish  the  building  if  the  owner  could  get  the 
material  elsewhere,  the  law  regarded  the  builder  as  liable  for 
the  proper  construction  of  the  building  and  construed  the  circum- 
stances of  this  case  as  not  constituting  any  assent  to  an 
abandonment  of  the  contract. 

An  architect's  contract  with  the  owner,  unless  some  ex- 
pressed stipulation  is  made  to  the  contrary,  is  a  personal  one. 
The  performance  of  the  contract  involves  the  personal  skill  and 
judgment  of  the  architect  himself,  and  cannot  be  undertaken  for 
him  by  any  assignee  in  case  of  his  bankruptcy,  or  by  his  executors 
or  administrators  in  case  of  his  death.  The  contract  cannot  be 
assigned  by  the  architect  to  anyone  else  without  the  owner's 
consent.  It  is  a  well-settled  rule  of  law  in  case  of  an  entire 
contract  for  a  certain  amount  of  goods  or  services,  that  no  part 
of  the  price  is  due  unless  the  whole  of  the  goods  is  delivered 
or  the  entire  service  rendered.  As  an  architect's  contract  with  an 
owner  is  held  to  be  an  entire  one,  his  family  in  case  of  his  death 
or  disability  would  be  unable  to  collect  any  compensation  for 
what  he  had  done  on  unfinished  buildings,  were  it  not  for  a 
special  exception  which  is  made  by  statute  in  most  of  the  States, 
to  the  eflfect  that  where  full  performance  of  contracts  for  per- 
sonal services  is  prevented  by  death  during  the  term  of  the 
service  the  personal  representative  of  the  deceased  is  entitled  to 
recover  ratable  compensation  for  services  actually  rendered. 

The  architect's  certificate,  which  is  the  document  in  ac- 
cordance with  which  the  accounts  are  closed,  is  issued  after 
all  the  work  is  done,  all  the  extra  work  noted,  and  if  extras 
are  allowed  a  reasonable  price  is  fixed  therefor.  It  is  usual 
to  pay  the  builder  installments  of  the  contract  price  as  his  work 
goes  on,  in  accordance  with  interim  or  provisional  certificates 
given  by  the  architect,  and  as  it  is  impossible  to  judge  as 
accurately  of  the  value  of  work  partly  done  as  it  is  of  a  completed 
job  under  a  contract,  and  as  a  large  reserve  is  usually  made  from 
the  total  amount  earned  by  the  contractor,  to  serve  as  a  margin 
to  cover  contingencies  until  the  completion  of  the  contract,  the 
architect  is  commonly  allowed  a  certain  liberty  in  estimating 
the  provisional  amounts  due.  He  must,  however,  be  careful  not 
to  overestimate  them  or  he  may,  if  the  builder  should  suddenly 
abandon  his  contract,  be  compelled  to  pay  out  of  hit  own  pocket 
the  difference  between  what  he  ought  to  have  certified  and  the 
amount  which  the  builder  has  obtained. 

After  a  certificate  is  given,  the  architect  cannot  recall  it, 
unless  he  discovers  that  there  was  some  mistake  in  it.     An 


458  ARCHITECTS  AND  BUILDERS 

architect  once  gave  a  final  certificate  and  afterward  wrote  a 
letter,  in  which  he  said  that  the  certificate  was  not  intended  as  a 
final  decision  upon  any  just  rebate  or  oflfsets.  The  Court  held 
that  it  was  nevertheless  conclusive.  Of  course  there  may  be 
circumstances  in  which  a  different  decision  would  be  given.  For 
example,  in  a  certain  recent  case  a  church  was  built  from  plans 
made  by  a  certain  architect,  but  the  erection  was  superintended 
by  an  assistant.  With  the  tacit  assent  of  the  church  authorities 
and  of  the  architect,  certificates  for  interim  payments  were  given 
by  the  local  superintendent  and  payments  were  made  on  them, 
although  the  contract  provided  that  certificates  were  to  be  given 
by  the  architect.  When  the  church  was  finished,  the  architect, 
who  had  not  visited  it  before,  refused  to  give  a  final  certificate, 
although  the  local  superintendent  was  willing  to  do  so.  It  was 
held  on  a  suit  by  the  contractor  for  his  pay,  that  the  opinion  of 
the  architect  was  under  the  circumstances  immaterial,  as  the  local 
superintendent  had  been  accepted  in  his  place. 

Where  the  contract  so  provides,  the  certificate  of  the  archi- 
tect is  just  as  binding  on  the  owner  as  on  the  builder.  Where 
work  is  supervised  by  a  firm  of  architects,  it  has  been  held  that 
the  signature  of  one  of  the  partners  to  a  certificate,  without 
objection  from  the  other,  is  sufficient. 

Where  extra  work  is  done  under  a  contract,  it  is  often 
claimed  by  builders  that  the  provisions  of  the  contract  as  to  the 
production  of  a  certificate,  as  well  as  the  other  conditions  of 
payment,  apply  only  to  the  work  done  under  the  original  agree- 
ment and  not  to  the  extra  work.  This  idea  is  entirely  erroneous. 
The  courts  uniformly  hold  that  the  contract  conditions,  in  this 
class  of  contracts,  cover  both  the  original  and  the  extra  work, 
except  in  case  of  changes  so  extensive  that  the  work  included 
in  the  original  agreement  can  no  longer  be  traced,  and  there  are 
several  decisions  to  the  effect  that  the  requirements  of  a  contract 
as  to  certificates  apply  equally  to  work  detailed  in  the  specifica- 
tions and  to  extra  work  for  alterations. 

The  refusal  of  an  architect  to  give  a  certificate  of  per- 
formance must  be  based  on  and  supported  by  some  real  and 
substantial  failure  on  the  part  of  the  builder  to  fulfil  his  duties 
under  the  contract,  and  such  failure  should  be  pointed  out  and 
protested  aglinst  by  the  architect,  and  it  must  appear  that  the 
work  was  not  performed  as  provided  in  the  contract,  and  that 
the  builder  was  not  really  entitled  to  the  certificate.  To  con- 
stitute a  certificate  a  final  one,  it  is  not  essential  that  it  be 
declared  to  be  such,  but  if  in  balance  or  satisfaction  of  all  claims 
it  is  sufficient. 


ARCHITECTS  AND  BUILDERS  459 

Where  the  building  contract  expressly  provides  that  the 
certificate  of  an  architect  shall  be  final  and  conclusive,  it  is  a 
well-settled  rule  of  law  that  such  certificate  is  conclusive  and 
binding  in  its  legal  operation  and  effect  upon  the  owner,  the 
builder  and  all  other  parties  to  the  contract,  including  the  sureties. 
A  clause  providing  that  if  any  differences  should  arise  between 
the  parties  in  relation  to  the  contract  or  the  work  to  be  per- 
formed under  it,  the  decision  of  the  architect  should  be  final,  does 
not  render  binding  a  decision  on  the  claim  of  the  owner  for  a 
bill  for  merchandise  sold  to  the  builders,  as  such  claim  was 
entirely  outside  of  the  contract.  So  a  clause,  providing  that  the 
decision  of  the  architect  shall  be  final  and  binding  in  case  the 
parties  fail  to  agree  as  to  the  value  of  extra  or  deducted  work, 
or  the  amount  of  extra  time,  or  in  case  of  any  disagreement 
between  the  parties  relating  to  the  performance  of  any  covenant 
or  agreement  contained  in  the  contract,  does  not  cover  a  claim 
made  by  the  builder  for  the  recovery  of  damages  resulting  from 
a  delay  caused  by  the  failure  of  other  contractors  to  complete 
the  work. 

The  only  grounds  upon  which  an  architect's  certificate  may 
be  impeached  are  fraud  and  such  gross  mistakes  as  would  imply 
bad  faith  or  a  failure  to  exercise  an  honest  judgment. 

Architect's  Duty  Toward  Builder. 

In  his  relations  to  the  builder,  the  architect,  although 
employed  by  the  owner,  is  bound  to  act  fairly.  However  strict 
he  may  be  in  holding  the  builder  to  his  contract,  he  must  not  try 
to  overreach  him  or  enter  into  any  secret  arrangement  with  the 
owner  to  deprive  him  of  any  part  of  the  money  justly  due  him. 
In  all  cases  the  architect  is  presumed  to  be  an  impartial  man  of 
science,  and  the  contract  between  the  owner  and  the  builder 
usually  makes  him  the  final  referee  in  matters  relating  to  the 
construction  of  the  building  and  the  regulation  of  the  accounts. 
If  it  can  be  shown  that  he  has  a  personal  interest  in  distorting 
the  facts  in  favor  of  either  party,  his  award  loses  its  validity  and 
both  parties  are  absolved  from  accepting  it.  It  occasionally 
happens  that  delays  occur  in  building  due  to  the  fault  or  neglect 
of  the  architect,  and  in  this  case  the  architect  must  see  that  he 
does  not  try  to  push  oflF  the  burden  of  responsibility  for  them 
from  his  own  shoulders  on  those  of  the  builder.  The  architect, 
if  he  had  caused  delay  by  neglect  to  furnish  drawings  when  the 
builder  needed  and  asked  for  them,  would  not  be  allowed  to 


46o  ARCHITECTS  AND  BUILDERS 

use  his  position  as  final  arbitrator  in  matters  relating  to  the 
contract,  to  impose  penalties  upon  the  builder  for  the  delay 
caused  by  his  own  neglect.  It  is  the  duty  of  the  architect  to 
show  diligence  and  care,  as  well  as  perfect  honesty,  in  adjusting 
the  accounts  between  the  owner  and  the  builder,  failing  which 
he  becomes  legally  liable. 

Conversely,  the  builder  owes  certain  duties  to  both  the 
architect  and  owner,  which  we  will  briefly  outline.  The  first 
duty  is  to  furnish  the  bond  required  by  the  contract.  It  is  a 
further  duty  of  the  builder  to  comply  with  all  building  regu- 
lations, because  a  builder  cannot  recover  under  a  contract  where 
he  has  failed  to  comply  with  all  building  regulations.  Where 
the  contract  requires  a  builder  to  obtain  a  permit  from  the 
Building  Department  of  the  city,  he  must  file  plans  free  from 
objections  and  acceptable  to  the  department,  as  their  filing  is  a 
prerequisite  to  the  granting  of  a  permit.  In  many  States  a  per- 
mit will  only  be  issued  upon  the  personal  application  of  the 
owner.  If  a  contract  has  been  awarded  to  a  builder  and  the 
owner  fails  to  obtain  a  permit  the  builder  may  recover  damages. 

The  builder  is  not  bound  to  insure  the  building  he  is 
constructing  until  its  completion,  unless  the  contract  so  provides. 
A  builder  who  has  agreed  to  erect  a  building  on  the  land  of 
another  has  no  right  to  interfere  with  the  latter's  possession 
any  more  than  is  necessary  to  carry  out  his  contract,  and  he 
cannot  after  his  work  is  completed  retain  possession  as  against 
the  owner,  with  a  view  of  enforcing  payment  of'  the  price  or 
dispossess  the  owner.  He  is  only  entitled  to  have  such  pos- 
session of  the  building  given  to  him  as  is  required  for  the  purpose 
of  labor  thereon.  It  is  a  practical  matter  of  importance  to  bear 
in  mind  that  where  an  owner  of  land  on  which  buildings  are 
standing  contracts  for  the  erection  of  new  buildings  thereon,  the 
builder  on  taking  possession  under  the  contract  has  a  right  to  the 
material  of  the  old  building,  except,  of  course,  where  there  is 
some  express  provision  in  the  contract  to  the  contrary.  A  con- 
tract to  excavate  land,  however,  for  the  erection  of  a  building 
thereon  does  not  imply  that  the  title  to  valuable  minerals  removed 
in  performing  the  contract  is  transferred  to  the  builder. 

A  builder's  right  to  exercise  his  own  judgment  with  respect 
to  what  the  specifications  and  plans  require  for  its  fulfilment  is 
subordinated  to  that  of  an  architect  who  is  authorized  to  deter- 
mine their  meaning.  A  builder  is  not  entitled  to  recover  for  work 
as  an  extra,  where  it  is  included  in  the  contract  but  not  mentioned 


ARCHITECTS  AND  BUILDERS  461 

in  the  specifications  referred  to  in  the  contract.  Where  signed 
specifications  provided  that  the  finishing  of  certain  work  should 
be  made  of  freshly  burnt  shell  lime  and  thoroughly  washed  coarse 
white  marble  dust,  but  the  plans  and  specifications  submitted  to 
the  contractors,  and  on  which  they  bid,  called  for  a  plain  cement 
exterior  coat,  without  the  white  finish,  the  builders  were  held 
bound  to  the  specifications  signed.  The  courts  have  even  gone 
so  far  as  to  hold  that  a  builder  was  not  liable  to  furnish  elevator 
gates  under  a  contract  calling  for  a  combination  passenger  and 
freight  elevator,  without  more  particular  specifications. 

A  builder  carrying  on  an  independent  employment  and  acting 
in  pursuance  of  a  contract  with  his  employer,  by  which  he  has 
agreed  to  work  at  specified  times  in  a  particular  manner  and  for 
a  stipulated  price,  is  alone  liable  for  injuries  to  third  parties  that 
occur  while  the  work  is  progressing  and  which  are  caused  by  his 
negligence.  For  negligence  of  the  builder  not  done  under  the 
contract,  but  in  violation  of  it,  the  employer  is  not  liable;  the 
relationship  of  master  and  servant  not  subsisting  between  the 
parties,  but  only  that  of  contractor  and  contractee,  and  the 
power  of  directing  and  controlling  the  work  being  parted  with 
by  the  employer  and  given  to  the  builder.  But,  on  the  other 
hand,  if  the  builder  is  employed  generally,  and  the  work  is  to  be 
performed  for  a  stipulated  price,  the  employer  remains  liable 
because  he  retains  the  right  and  power  of  directing  and  con- 
trolling the  manner  and  time  of  executing  the  work.  The  builder 
is  not  liable  for  injuries  to  trespassers  on  the  building.  The 
owner  is  responsible  to  persons  injured  by  a  builder  while 
employed  in  doing  work  which  in  the  progress  of  its  execution 
exposes  others  to  unusual  peril.  The  owner  is  also  liable  for  the 
negligence  of  a  builder  where  such  negligence  creates  a  nuisance 
and  where  an  incompetent  and  untrustworthy  builder  is  employed. 
After  completion  and  acceptance  of  a  building  the  liability  of  a 
builder  for  accidents  caused  by  defective  construction  ceases  and 
the  liability  attaches  to  the  owner,  whether  the  damage  is 
attributable  to  his  own  negligence  or  to  that  of  the  builder.  It 
must  be  remembered,  however,  that  the  builder  is  responsible  to 
the  owner  for  defective  performance  of  his  contract.  In  this  con- 
nection it  should  be  further  borne  in  mind  that  where  the  builder 
performs  his  work  strictly  in  conformity  with  the  plans  and 
specifications,  he  is  not  liable  for  defects  in  the  work  that  are  due 
to  faulty  structural  requirements  contained  in  such  plans  and 
specifications.    If  the  builder  departs  from  his  working  contract 


462  ARCHITECTS  AND  BUILDERS 

without  obtaining  consent  to  do  so,  he  becomes  a  guarantor  of  the 
strength  and  safety  of  the  building. 

The  courts  have  held  that  a  builder  is  not  liable  for  the 
cracking  of  walls  caused  by  the  unfitness  of  the  soil  to  sustain 
them,  when  the  employer  refused  to  have  the  foundation  of  the 
wall  made  sufficiently  deep  and  broad. 

An  owner  who  has  paid  for  all  the  work  that  has  been  done 
on  the  contract  may  immediately  upon  a  default  of  the  builder 
to  complete  take  possession  of  the  unfinished  building;  and,  if 
he  pleases,  employ  another  person  to  do  what  the  builder  had 
been  engaged  to  do  and  had  refused  to  do.  This  right  is  not) 
affected  because  the  contract  provides  that  the  owner  may  com- 
plete the  building;  but,  where  the  owner  fails  to  avail  himself 
of  a  provision  to  that  effect,  work  done  thereafter  is  done  under 
the  contract.  When  the  contract  provides  that  if  the  builder 
fails  to  complete  the  building  as  agreed  the  owner  may  do  so, 
and  deduct  the  expense  from  the  contract  price,  the  contractor 
cannot  abandon  the  work  and  compel  the  owner  to  complete  it 
and  account  to  him  for  the  balance  of  the  contract  price. 

Compensation  of  Sub-Contractors. 

As  a  general  rule  of  law  the  builder  and  not  the  owner  is  the 
person  liable  for  services  performed  by  a  person  under  a  contract 
with  the  builder  and  for  materials  furnished ;  and  sub-contractors 
and  material  men  must  look  for  payment  to  the  former.  Where 
a  building  is  destroyed  by  fire  while  in  course  of  erection,  a  set- 
tlement between  the  owner  and  the  contractor  by  which  the  latter 
is  paid  for  the  work  as  far  as  done  entitles  a  sub-contractor  to 
be  paid  by  the  contractor  for  work  actually  done  by  him,  not- 
withstanding some  things  of  minor  importance  may  not  have 
been  performed  in  accordance  with  the  sub-contract,  since  such 
failure  was  waived  in  the  adjustment  between  the  original 
contractor  and  the  owner. 

Although  a  contract  with  a  private  individual  is  a  very 
informal  affair,  and  almost  anything  will  be  regarded  as  a  proper 
signature  which  shows  the  intentions  of  the  parties,  it  is  very 
different  where  a  corporation  is  one  of  the  parties  to  the  agree- 
ment. While  a  private  individual  may  enter  into  any  sort  of  con- 
tract that  he  chooses,  and  will  be  held  to  the  fulfilment  of  any 
promise  in  consideration  of  which  he  has  received  benefit  from 
another,  the  powers  of  corporations  are  strictly  limited  either 
by  their  charters  or  by  statute,  and  they  cannot  be  compelled  to 


ARCHITECTS  AND  BUILDERS  463 

\ 
carry  out  promises  made  by  their  officers  beyond  the  bounds  of 
their  authority,  no  matter  what  may  be  the  hardships  inflicted 
upon  the  persons  who  have  incautiously  trusted  them. 

In  the  United  States  the  contracts  of  corporations  signed  by 
the  proper  officers  and  made  in  accordance  with  the  statutes  or 
charters  regulating  the  affairs  of  the  corporations  may  be  con- 
sidered as  valid,  even  though  the  corporate  seal  is  not  attached  as 
part  of  the  signature  to  the  contract.  However,  it  is  very 
necessary  that  the  contract  should  be  within  the  authority  of 
the  corporation  and  of  the  officers  who  claim  to  represent  it, 
and  our  courts  hold  that  it  is  the  duty  of  the  person  who  wishes 
to  make  a  contract  with  a  corporation  to  inform  himself  on  this 
point.  If  he  fails  to  do  so  the  corporation  cannot  be  held  liable 
for  losses  which  he  may  suffer  in  carrying  out  an  agreement 
entered  into  without  proper  authority.  Architects  and  builders 
cannot  be  too  careful  to  see  that  corporations,  public  and  private, 
have  proper  authority  to  execute  the  contracts  entered  into  with 
them  if  they  wish  to  be  sure  of  getting  their  pay  for  what  they  do. 

Not  only  can  nothing  be  recovered  on  a  contract  illegally 
made  with  the  representatives  of  a  public  body  even  if  the 
work  is  entirely  performed,  but  the  agreement,  where  it  is 
within  the  legal  authority  of  the  officials  who  make  it,  must 
be  made  with  due  formality  or  it  will  not  be  binding  on  the 
corporation  which  they  represent.  It  has  been  held  that  an 
agreement  made  by  County  Commissioners  not  at  a  regular 
meeting  of  the  board,  but  in  vacation,  was  not  binding  on  the 
county,  and  where  the  individual  members  had  separately 
signified  their  assent  this  was  held  to  be  insufficient. 

In  certain  other  respects  the  rights  of  a  contractor  against 
A  corporation  are  much  more  restricted  than  they  are  against 
a  private  individual.  For  example,  no  mechanic's  lien  can  be 
maintained  for  work  on  a  public  building,  such  as  a  public 
schoolhouse,  jail,  etc..  and  the  property  of  corporations  other 
than  towns,  counties  or  States,  where  used  for  the  public  service, 
as  in  the  case  of  railway  stations,  ferry  houses  and  similar 
structures,  is  exempt  from  mechanics*  liens. 

Many  corporations  are  formed  for  the  purpose  of  evading 
liability  on  the  part  of  the  men  who  practically  own  and  manage 
them,  and  who  by  placing  most  of  the  stock  in  the  hands  of 
irresponsible  dependents  can,  without  risking  their  own  prop- 
erty, pile  up  debts  against  the  corporation  which  can  never  be 
collected  for  lack  of  corporate  assets  with  which  to  pay  them ; 
and  even  where  a  corporation  is  formed  and  managed  in  good 


464  ARCHITECTS  AND  BUILDERS 

faith,  the  directors  have  no  right  out  of  a  mere  sentiment  of 
honor  to  pay  away  the  stockholders'  money  to  persons  who  have 
no  legal  claim  to  it.  The  old  familiar  adage,  "a  stitch  in  time 
saves  nine,"  applies  with  particular  force  to  architects  and 
builders  who  enter  into  contracts  with  corporations  of  any 
description. 

Some  Important  Decisions. 

In  connection  with  the  right  of  sub-contractors  to  compen- 
sation, briefly  touched  upon  previously,  a  few  important 
decisions  will  be  valuable  to  bear  in  mind.  It  has  been 
held  that  a  provision  made  by  a  contractor  in  a  contract 
between  him  and  a  sub-contractor  that  he  shall  be  entitled  to 
retain  in  his  hands  a  part  of  the  earnings  as  a  protection  against 
his  liability  to  the  persons  employed  by  the  sub-contractors,  will 
not  give  to  the  latter  or  his  assignee  any  right  of  action  against 
the  contractor  personally  or  any  lien  on  the  fund  itself.  An 
owner  who  says  to  a  material  man,  who  has  already  furnished 
materials  to  the  contractor,  that  he  will  pay  for  all  the  materials 
that  the  contractor  might  get  for  the  building,  is  liable,  on  his 
promise,  for  all  materials  furnished  thereafter  for  the  building 
and  charged  to  him ;  but  is  not  liable  for  such  material  as  had 
before  the  promise  been  furnished  to  the  contractor. 

A  sub-contractor  may  resort  to  an  owner  to  the  extent  of 
any  money  paid  away  to  his  damage  after  the  owner  has  accepted 
an  order  from  the  builder  in  favor  of  the  sub-contractor  agreeing 
to  deduct  the  amount  of  the  sub-contractor's  claim  out  of  pay- 
ments due  the  contractor  on  completion  of  the  building.  An 
order  or  draft  if  accepted  by  the  owner  amounts  to  an  assign- 
ment of  the  fund  due  under  the  building  contract;  and  a  subse- 
quent assignment  from  the  contractor  to  a  third  person  for  his 
rights  under  the  contract  does  not  affect  the  rights  thus  acquired 
under  said  order.  Where  the  owner  of  a  house  in  process  of 
building  accepted  an  order  drawn  upon  him  by  the  builder  in 
favor  of  a  third  person,  to  be  paid  When  the  house  was  finished, 
and  neither  the  builder  nor  the  owner  finished  the  house,  but 
it  was  sold  by  the  latter  in  an  unfinished  state  and  afterward 
completed  by  the  purchaser,  the  third  party  doing  some  work 
upon  it  was  entitled  to  recover  from  the  owner.  The  fact  that 
a  contract  provided  that  the  owner  should  retain  fifteen  per  cent 
of  each  partial  estimate,  made  as  the  work  progressed,  to  insure 
him  that  all  claims  for  labor  and  material  would  be  paid  by  the 


ARCHITECTS  AND  BUILDERS  465 

contractor,  and  that  the  building  should  be  completed  in  accord- 
ance with  the  contract,  gives  a  sub-contractor  no  right  of  action 
or  claim  against  the  owner  for  money  so  retained,  though  from 
estimates  based  on  labor  and  material  furnished  by  him.  Per- 
sons who  have  advanced  money  to  the  builder  with  the  expecta- 
tions that  it  will  be  used  in  carrying  out  the  building  contract 
cannot,  where  some  of  it  has  been  paid  to  laborers  and  material 
men,  demand  that  an  owner's  right  to  withhold  the  funds  only 
in  case  of  non-payment  of  laborers  or  material  men  be  exercised 
in  their  favor. 

Rights  and  Liabilities  of  Sureties. 

Sureties  are  bound  only  in  the  manner  and  to  the  extent 
provided  in  the  obligation  of  the  bond,  and  its  terms  cannot  be 
changed  without  their  consent,  even  with  a  view  to  avoid  ulti- 
mate liability.  Thus^  if  payments  are  made  to  the  builder  in 
excess  of  the  amounts  due  on  the  estimates,  they  will  not  be 
liable  for  the  excess  and  payment  to  the  builder  without  tlie 
surety's  consent  of  a  percentage  that  should,  under  the  building 
contract,  be  reserved  until  completion  of  the  work  for  which  a 
bond  was  given  discharges  the  surety. 

Where  the  retention  moneys  have  been  paid  over  and 
thereby  the  position  of  the  sureties  has  been  altered,  but  such 
change  in  position  has  been  effected  by  fraudulent  execution  of 
the  work,  the  honest  execution  of  which  the  sureties  have  guar- 
anteed, the  sureties  are  not  discharged,  it  being  a  principle  of 
the  law  of  suretyship  that  a  si\rety  cannot  claim  to  be  dis- 
charged upon  the  ground  that  his  position  has  been  altered  by 
the  conduct  of  the  person  with  whom  he  has  contracted,  where 
that  conduct  has  been  caused  by  a  fraudulent  act  or  commission, 
against  which  the  surety,  by  the  contract  of  suretyship,  has 
gfuaranteed  the  person  with  whom  he  has  contracted. 

On  the  default  of  the  builder,  in  cases  where  the  contract 
requires  him  to  pay  for  all  labor  and  material  furnished,  a  right 
of  action  directly  against  the  sureties  accrues  to  unpaid  laborers, 
material  men,  and  sub-contractors.  However,  in  the  absence  of 
this  provision  the  sureties  are  not  liable,  unless  they  have  com- 
pleted the  building  on  his  default,  and  under  an  agreement  with 
him  collected  the  price  from  the  owner. 

Sureties  on  a  bond  conditioned  for  building  in  accordance 
with  plans  are  released  by  a  substantial  change  in  the  plans,  if 
the  changes  are  made  without  their  consent.    Changes  and  altera- 

80 


466  ARCHITECTS  AND  BUILDERS 

tions  made  by  the  owner  will  not  release  the  sureties  where  the 
contract  permits  him  at  any  time  during  progress  of  building 
operations  to  make  alterations,  changes,  or  additions  without 
invalidating  the  contract,  or  where  the  bond  itself  contains  a 
similar  provision, 

A  surety  is  not  discharged  from  his  obligation  because  a 
building  contract,  plans  and  specifications,  or  the  bond  itself, 
have  not  been  filed  or  recorded  as  required  by  statute. 

A  builder  may  recover  for  all  damages  occasioned  him  by 
the  owner's  or  employer's  breach  of  the  contract.  Thus  he  may 
recover  not  merely  the  sum  he  may  have  paid  his  sub-contractors, 
but  for  losses  caused  by  his  having  been  compelled  to  do  the 
work  in  an  unusual  and  more  expensive  manner,  or  in  more 
inclement  weather,  and  for  all  elements  of  loss  proximately 
affecting  him.  Interest  on  capital  invested  by  the  builder  for 
material  and  on  money  due  to  him  should  be  allowed  in  esti- 
mating his  damages,  notwithstanding  the  amount  he  seeks  to 
recover  may  be  reduced  because  he  has  deviated  from  the  terms 
of  his  contract,  but  interest  will  not  be  allowed  on  his  profits 
until  they  are  determined  by  the  verdict. 

Mechanics*  Liens. 

Closely  allied  to  the  subject  of  architects'  and  builders' 
contracts  is  that  of  mechanics'  liens,  and  as  the  law  regulating 
the  rights  of  mechanics  and  material  men  affects  such  a  vast 
number  of  people,  we  will  direct  our  attention  to  a  brief  analysis 
of  this  subject.  The  law  of  mechanics'  liens  is  more  or  less 
technical,  and  being  the  result  of  statutory  enactment,  varies 
considerably  in  the  different  States. 

A  mechanics'  lien  is  a  lien  created  by  statute  which  exists 
in  favor  of  persons  who  have  performed  work  or  furnished 
materials  in  and  for  the  erection  of  a  building.  The  lien  is  given 
to  secure  priority  of  payment  of  the  price  and  value  of  work 
performed  and  the  materials  furnished,  and  springs  out  of  the 
appropriation  and  use  by  the  landowner  of  the  mechanics'  labor 
and  the  materials  furnished.  It  rests  upon  the  broad  ground  of 
natural  equity  and  commercial  necessity.  Without  the  existence 
of  the  mechanics'  lien  laws,  the  judgment  creditors  of  the  owner 
of  property  might  levy  upon  and  sell  the  new  or  improved  prop- 
erty before  the  builder  could  secure  a  judgment  for  his  claim, 
with  the  effect  that  the  latter  might  be  unable  to  secure  com- 
pensation for  the  services  he  may  have  furnished  or  the  money 
he  may  have  expended.     It  is  evident  that  without  some  such 


ARCHITECTS  AND  BUILDERS  467 

protection,  building  operations  would  be  incalculably  hampered. 
While  such  liens  are  now  looked  upon  merely  as  a  special  pro- 
tection to  building  contractors,  they  were  originally  proposed 
as  a  means  of  enabling  a  poor  man  to  secure  a  contractor  to 
undertake  the  building  of  his  home. 

The  law  regulating  mechanics'  liens  has  been  codified  in 
most  States,  and  differs  only  in  minor  details  from  that  adopted 
in  Pennsylvania  by  the  act  of  June  4,  1901. 

In  Pennsylvania  a  mechanics'  lien  is  of  an  arbitrary  char- 
acter. It  attaches  at  once  and  is  binding  upon  the  property  from 
a  designated  event  for  a  specified  period  of  time,  and  it  may  be 
further  continued  by  simply  filing  at  or  before  the  expiration 
of  that  period,  in  the  office  of  the  Prothonotary  of  the  proper 
county,  a  claiin.  The  Legislature  of  Pennsylvania  in  1901  passed 
an  act  which  practically  inaugurates  a  complete  change  in  the 
mechanics'  lien  laws  of  this  State.  This  act  is  in  the  nature  of 
a  code,  and  regulates  all  the  rights  and  remedies  of  mechanics 
and  material  men  arising  out  of  building  operations. 

In  the  first  place,  every  mechanics'  lien  is  based  upon  a  debt 
contracted  for  work  done  or  materials  furnished  for  or  about 
the  erection  and  construction  or  alteration  and  repair  of  build- 
ings. A  mere  naked,  unexecuted  contract  would  not  be  sufficient 
in  itself  to  support  a  lien,  as  there  is  required  in  addition  a 
performance  of  the  work  or  a  delivery  of  the  articles  for  which 
compensation  is  claimed.  This  work  must  have  been  done,  or 
the  materials  furnished,  not  upon  the  credit  of  a  contracting 
party,  but  of  the  thing  erected  or  repaired.  The  contract  need 
not  necessarily  be  in  writing,  but  may  be  entirely  oral. 

It  sometimes  happens  that  an  agreement  is  made  between 
the  owner  and  contractor  wherein  the  contractor  waives  the 
privilege  of  filing  a  lien  for  labor  or  materials  furnished.  Inas- 
much as  sub-contractors  likewise  have  the  privilege  of  filing  a 
lien,  as  we  shall  show  later,  it  is  manifest  that  such  an  agree- 
ment to  waive  the  right  to  file  a  lien  would  not  be  fairly  binding 
upon  such  sub-contractors  as  had  no  knowledge  of  such  agree- 
ment to  waive.  A  provision  in  a  contract  between  the  owner 
and  contractor  that  no  mechanics'  lien  shall  be  filed,  to  bind  a  sub- 
contractor, requires  that  actual  notice  of  such  agreement  shall 
be  given  to  him  before  any  labor  or  materials  are  performed  or 
furnished  by  him.  If  such  a  contract  is  filed  in  the  office  of  the 
Prothonotary  of  the  Court  for  the  county  in  which  the  building 
operation  is  located,  prior  to  the  commencement  of  the  work 
upon  the  ground,  or  within  ten  days  prior  to  the  contract  with 


468  ARCHITECTS  AND  BUILDERS 

the  claimant,  the  same  will  be  regarded  as  constructive  notice  to 
the  sub-contractor  and  hence  binding  upon  him. 

In  order  to  establish  a  mechanics'  lien  it  is  usually  necessary 
that  the  materials  furnished  or  labor  performed  should  have 
gone  into  something  which  has  attached  to  and  become  a  part 
of  the  realty,  and  has  added  substantially  to  the  value  thereof. 
A  lien  cannot  attach  to  one  piece  of  property  for  labor  per- 
formed on  other  property,  although  it  be  contiguous.  The  fact, 
however,  that  a  building  on  which  a  lien  is  claimed  extends  over 
the  line  of  the  land  described  in  the  petition  will  not  defeat  the 
lien  on  that  part  of  the  building  standing  on  the  land  described, 
for  the  value  of  the  labor  thereon,  if  this  can  be  ascertained. 

As  a  general  principle  of  law,  a  mechanics'  lien  attaches  to 
the  building  or  other  improvement  constructed,  and  the  interest 
of  the  owner  in  the  land  upon  which  it  is  situated,  whether  such 
interest  be  a  fee  simple,  an  estate  for  life,  or  any  less  estate  than 
a  fee.  The  lien  extends  to  any  interest  in  land  that  is  legally 
subject  to  mortgage. 

A  mechanics'  lien  can  attach  to  equitable  as  well  as  legal 
estates  in  land.  Thus  the  interest  of  one  who  being  in  possession 
of  land  under  a  contract  of  purchase,  erects  a  building  or  other 
improvements  thereon,  is  subject  to  the  lien.  But  a  mechanics' 
lien  cannot  attach  to  the  equitable  lien  of  a  vendor  for  the 
purchase  money  when  he  has  conveyed  the  whole  title.  A 
mechanics'  lien  will  likewise  attach  to  the  interest  of  a  lessee, 
whether  he  has  an  estate  for  years  or  is  merely  a  tenant  from 
month  to  month.  In  order,  therefore,  to  create  a  mechanics' 
lien  of  any  value  as  to  the  ground  built  upon,  the  party  in 
possession  at  the  time  the  structure  is  commenced,  and  at  whose 
instance  it  is  erected,  must  have  some  estate  in  the  land  to  the 
extent  of  which  it  may  be  bound,  though  that  estate  be  of  the 
most  remote  character. 

The  present  law  is  to  the  effect  that  an  owner  of  land  in 
possession  at  the  time  a  building  is  begun,  and  at  whose  instance 
it  is  erected,  may  subject  his  estate  therein  to  a  lien  for  a  debt 
contracted  for  work  done  or  material  furnished  for  such  erection, 
and  this,  notwithstanding  the  claimant  may  be  one  who  dealt 
with  him  under  a  special  contract. 

Right  to  a  Lien. 

In  order  to  establish  a  mechanics'  lien  it  is  usually  neces- 
sary that  the  materials  furnished  or  labor  performed  should  have 
gone  into  something  which  has  attached  to  and  become  a  part 


ARCHITECTS  AND  BUILDERS  469 

of  the  realty,  and  has  added  substantially  to  the  value  thereof. 
A  lien  cannot  attach  to  one  piece  of  property  for  labor  per- 
formed on  other  properties.  In  the  construction  of  statutes 
giving  a  lien  for  the  erection  and  construction  of  buildings  the 
controlling  element  in  deciding  whether  or  not  a  lien  can  exist 
appears  to  be  whether  or  not  a  new  building  has  been  put  up. 
Whether  or  not  the  lien  can  be  obtained  in  a  particular  case 
must  depend  upon  the  facts.  A  building  may  be  greatly  changed 
in  structure  without  losing  its  identity;  it  may,  on  the  other 
hand,  be  so  entirely  changed  in  plan  and  general  appearance  as 
to  become  in  a  fair  sense  a  new  building,  although  some  portions 
of  the  old  materials  may  remain  in  it.  Merely  adding  a  base- 
ment is  not  an  erection  or  construction,  nor  is  the  adding  of  a 
bath  house,  and  where  an  old  house  whose  walls  are  standing  is 
repaired  there  is  no  lien  therefor  as  against  a  new  structure. 

Many  statutes,  including  those  in  Pennsylvania  (see  act  of 
1901  and  supplements),  extend  mechanics'  liens  to  include 
repairs,  alterations  and  improvements. 

In  this  connection  the  law  in  the  matter  of  repairs  is 
virtually  the  same  as  the  law  in  the  matter  of  new  erections, 
according  to  the  uniform  decisions  in  Pennsylvania. 

Persons  Entitled  to  a  Lien. 

Not  only  the  persons  contracting  directly  with  the  owner  or 
his  agent  may  acquire  a  lien,  but  likewise  certain  sub-contractors. 
Section  i  of  the  act  of  1901  in  Pennsylvania  defines  a  con- 
tractor to  be  one  who  by  contract  or  agreement,  express  or 
implied,  with  the  owner,  or  one  who  acts  for  the  owner,  plans 
or  superintends  the  structure  or  other  improvement  or  any  part 
thereof;  or  furnishes  labor,  skill  or  superintendence  thereto;  or 
supplies  or  hauls  materials,  reasonably  necessary  for  and  actually 
used  therein,  or  any  or  all  of  them.  A  sub-contractor,  as  we 
pointed  out  previously,  is  one  who  by  contract  or  agree- 
ment, express  or  implied,  with  the  contractor,  or  with  one 
who  acts  for  him,  undertakes  to  do  certain  of  the  things 
enumerated  in  the  definition  of  a  contractor,  above  given.  It 
will  thus  be  seen  that  a  lien  may  be  filed  by  either  the  person 
contracting  directly  with  the  owner  or  by  the  person  contracting 
with  the  contractor.  The  question  which  naturally  might  arise 
is  whether  the  sub-contractor  of  the  sub-contractor,  and  so  on 
indefinitely,  may  file  a  lien  for  labor  or  material  furnished,  which 
question  we  will  consider  a  little  later. 


470  ARCHITECTS  AND  BUILDERS 

It  should  be  borne  in  mind  in  discussing  this  subject  that 
personal  property  which  is  so  attached  to  real  estate  as  to  become 
a  part  of  such  real  estate  is  usually  held  to  be  within  the 
mechanics'  lien  laws.  Accordingly,  lien  laws  have  been  held  to 
extend  to  stage  fittings  and  scenery,  theatre  seats  or  chairs,  store 
shelves  placed  so  as  to  conform  to  the  building  and  nailed  to 
the  wall,  window  and  door  screens,  manufactured  for  and  fitted 
to  a  building,  wires  and  insulators  in  an  electric  lighting  plant, 
mirrors  set  in  a  wall,  and  a  large  tank  upon  a  foundation 
expressly  built  for  it.  However,  lien  laws,  as  a  general  rule,  do 
not  cover  trade  fixtures,  such  as  tables  placed  in  a  store  building, 
but  not  attached,  temporary  partitions,  etc. 

Whether  or  not  machinery  is  within  the  lien  laws  usually 
depends  upon  whether  it  becomes  a  fixture.  If  it  is  stationary 
and  firmly  attached  to  the  realty,  so  as  to  become  a  part  thereof, 
it  is  the  subject  of  a  lien,  otherwise  not. 

The  statutes  in  most  States,  including  Pennsylvania,  give  a 
lien  only  for  work  or  labor  performed  on,  or  material  furnished 
for,  the  building  or  other  improvement,  and  a  lien  can  be  acquired 
only  where  there  is  something  due  to  the  claimant,  and  the  claim 
to  be  secured  and  enforced  is  such  as  the  statute  contemplated. 
When  a  round  price  is  to  be  paid  for  labor  and  materials  for  a 
part  of  which  the  law  gives  a  lien,  and  for  another  part  of 
which  there  can  be  no  lien,  and  there  is  no  way  of  determining 
how  much  is  of  one  kind  and  how  much  of  the  other,  no  lien 
can  be  enforced  for  either.  This  principle  of  law  should  be 
carefully  borne  in  mind  in  making  a  contract  to  perform  labor 
or  furnish  materials  in  the  construction  or  improvement  of  a 
building. 

The  persons  entitled  to  a  lien  under  the  law  of  Pennsyl- 
vania, which  in  this  regard  may  be  taken  as  a  criterion,  are: 
Any  contractor,  architect  or  builder  and  any  sub-contractor  con- 
tributing work  or  work  and  materials  upon  the  credit  of  the 
building  and  in  compliance  with  a  contract  to  erect;  any  work- 
man contributing  work  at  the  request  of  an  owner  or  contractor, 
toward  the  erection  and  upon  the  credit  of  the  building;  and 
any  material  man  furnishing  materials  at  the  request  of  an 
owner  or  a  contractor  to  erect,  dealing  immediately  with  an 
owner.  An  architect  or  builder  who  directs  and  oversees  the 
execution  of  the  work,  does  work  about  the  erection  of  the 
building  within  the  intendment  of  the  law,  and  is  entitled  to  a 
lien  for  his  labor.  But  where  a  mere  architect  confines  his  work 
to  preparing  the  plans  and  writing  out  the  specifications,  doing 
nothing  further,  he  is  not  entitled  to  a  lien. 


ARCHITECTS  AND  BUILDERS  471 

The  right  to  a  lien  for  materials  furnished  extends  to  all 
such  materials  as  ordinarily  enters  into  or  are  used  in  the  con- 
struction, repair  or  improvement  of  buildings.  Whatever  may 
be  the  condition  of  material  furnished  in  the  construction  of  the 
building,  whether  they  are  very  rough  or  perfectly  adapted  for 
their  purposes,  and  in  whatever  quantities,  or  from  whomsoever 
they  may  have  been  originally  purchased,  or  although  kept  by 
the  contractor  as  merchandise,  his  lien  is  not  affected  by  these 
considerations,  provided  only  the  materials  are  included  in  the 
work  contracted  for. 

It  has  been  held  that  a  mechanics'  lien  for  materials  may 
attach,  although  they  were  furnished  at  a  place  other  than  where 
the  building  or  other  improvements  was  erected  or  made,  and 
even  though  the  place  of  furnishing  the  material  is  without  the 
State.  It  is  laid  down,  however,  as  the  general  rule  that  the  lien 
attaches  only  for  materials  actually  used  in  the  construction  of 
the  building.  A  lien  may  be  allowed  where  materials  have  been 
prepared  or  furnished  as  ordered  and  the  owner  refuses  to 
accept  or  use  them.  It  is  sufficient  in  most  States  that  the 
material  be  furnished  on  the  credit  of  the  building  for  use 
therein,  and  it  is  immaterial  as  between  owner  and  furnisher 
whether  they  are  used  or  not. 

There  can  be  no  mechanics'  lien  for  money  lent  or  advanced 
to  a  contractor  or  other  person  for  the  purpose  of  enabling  him 
to  purchase  material  for  or  pay  for  labor  upon  a  building  or 
improvement. 

Under  the  title  of  workman  are  classed  all  such  as  are 
neither  contractors  nor  sub-contractors.  But  such  master  work- 
men or  inferior  contractors  as  contract  with  the  owner  or  a 
contractor  to  furnish  special  work  toward  the  erection  or  repair 
of  the  building,  as,  for  example,  to  manufacture  all  the  mould- 
ings, door  and  shutters,  are  not  regarded  as  coming  within  the 
legal  definition.  Mere  subordinates  or  journeymen,  however,  are 
not  included  within  this  class  of  claimants  and  have  no  lien. 

It  is  usually  held  that  where  the  contract  is  for  a  building 
generally,  extras  subsequently  ordered  will  be  covered  by  the 
lien,  at  any  rate  if  provision  is  made  in  the  contract  with  regard 
to  extras,  thereby  showing  that  they  were  contemplated.  There 
is  no  lien  for  damages  sustained  by  the  contractor  by  reason  of  a 
breach  of  contract  by  the  owner,  or  damages  of  protest  on  an 
acceptance  given  for  work  and  labor.  Neither  is  a  sub-contractor 
entitled  to  a  lien  for  damages  and  expenses  incurred  through 
idleness,  nor  on  account  of  work  made  necessary  by  the  default 


472  ARCHITECTS  AND  BUILDERS 

or  negligence  of  the  principal  contractor  nor  for  breach  of 
contract  on  his  part.  It  must  always  be  borne  in  mind  that  the 
lien  is  intended  to  merely  cover  the  actual  work  done  and  mate- 
rials furnished  on  the  credit  of  the  building  constructed  or 
improvement  made  thereon. 

It  is  usually  held  that  where  a  lease  contains  a  provision 
authorizing  the  lessee  to  make  repairs  or  improvements  at  the 
cost  of  the  lessor,  either  generally  or  by  deducting  the  cost  from 
the  rent,  or  where  part  of  the  consideration  for  the  lease  is  the 
making  by  the  lessee  of  improvements  which  become  a  part  of 
the  realty,  or  that  improvements  made  by  the  lessee  shall  revert 
to  the  lessor,  a  mechanics'  lien  may  attach  to  the  property  for 
work  done  or  materials  furnished  pursuant  to  a  contract  with 
the  lessee.  And  it  has  even  been  held  that  a  mere  provision  in 
the  lease  authorizing  the  lessee  to  make  improvements  at  his 
own  expense  shows  such  consent  of  the  lessor  as  will  authorize 
a  lien  on  the  property.  But  where,  although  the  terms  of  the 
lease  require  the  lessee  to  erect  a  building  on  the  property,  it  is 
also  provided  that  such  building  shall  be  the  property  of  the 
lessee,  removable  at  the  expiration  of  the  lease,  no  lien  on  the 
lessor's  interest  arises  out  of  the  erection  of  such  building. 

The  Act  of  1901. 

It  will  be  remembered  from  what  has  been  stated  above  that 
a  contractor,  whether  for  the  entire  construction  or  only  for 
some  primary  part  .of  a  building,  may  confer  on  those  with 
whom  he  contracts  to  do  parts  of  the  work  embraced  in  his 
contract  the  right  to  liens  on  the  building.  But,  on  the  other  hand, 
under  section  i  of  the  Pennsylvania  act  of  June  4,  1901,  a 
person  contracting  with  a  material  man  who  has  the  contract  to 
furnish  the  material  for  a  building  may  not  have  a  lien. .  The 
same  section  provides  that  an  architect  cannot  file  a  lien  for 
work  done  by  him  under  a  contract  with  the  contractor,  although 
he  may  for  work  done  by  him  under  contract  with  the  owner. 
The  contractor  who  plans  or  superintends  the  erection  of  a 
structure,  or  furnishes  the  labor  therefor,  is  not  in  the  eyes  of 
the  law  a  mere  workman,  but  rather  an  agent  for  the  owner, 
and  thus,  representing  him,  has  power  by  contract  to  subject 
the  building  to  a  lien  for  work  or  labor  procured  by  him.  While 
it  is  true  that  a  material  man  is  said  to  be  a  contractor  in  the 
act  of  1901,  he  does  not  as  such  stand  in  a  representative 
capacity,  and  the  act,  as  we  have  just  seen,  specifically  precludes 
those  who  contract  with  him  from  filing  a  lien. 


ARCHITECTS  AND  BUILDERS  473 

Difficulties  may  frequently  be  overcome  with  reference  to 
the  right  to  file  a  lien,  by  taking  advantage  of  the  twenty-sixth 
section  of  the  act  of  1901,  which  provides  that  any  claim  filed 
or  to  be  filed  under  the  provisions  of  this  act  may  be  assigned 
or  transferred  to  a  third  party,  either  absolutely  or  as  collateral 
security. 

As  a  general  rule,  where  a  husband  contracts  in  his  own 
name  for  a  building  or  improvement  on  land  which  is  owned  by 
his  wife,  a  mechanics'  lien  cannot  be  obtained.  But  the  property 
may,  however,  be  subjected  to  a  lien  where  the  husband  in 
making  the  contract  acted  as  her  agent  or  representative,  or 
where  she  has  held  out  her  husband  as  her  agent.  Nevertheless, 
in  order  to  charge  the  wife's  land  under  a  contract  made  by  her 
husband,  it  must  clearly  appear  that  she  authorized  him  to  act 
for  her,  and  no  authority  from  the  wife  to  the  husband  will  be 
inferred  from  the  mere  existence  of  the  marital  relation. 

Whether  a  mechanics'  lien  attaches  under  a  building  con- 
tract depends  at  the  outset  upon  the  nature  of  the  contract  and 
not  upon  that  which  is  done  under  it.  A  contractor  must  show 
that  his  contract  brings  him  within  the  terms  of  the  law  or  he 
cannot  have  a  lien.  The  contract  pursuant  to  which  the  labor 
is  done  or  the  materials  are  furnished  must  be  one  that  can  be 
enforced  in  an  action  at  law.  It  must  rest  upon  a  valid  con- 
sideration, and  be  sufficiently  definite  to  enable  the  amount  to 
become  due  under  it  to  be  determined  with  reasonable  accuracy 
and  precision.  Where  a  contractor  is  doing  business  under  a 
trade  name  other  than  his  own,  a  contract  made  with  him  in 
such  name  shows  that  he  is  the  real  party  in  interest  and  entitled 
to  a  lien.  The  consent  of  the  owner  to  the  improvements  for 
which  the  lien  is  claimed  must  be  absolute  and  not  clogged  with 
conditions. 

Too  much  care  cannot  be  exercised  on  the  part  of  con- 
tractors and  mechanics  as  well  as  material  men  in  looking  up  the 
title  to  the  land,  and  in  seeing  that  their  agreements  are  in  proper 
shape,  as  a  little  precaution  in  this  regard  frequently  saves 
unnecessary  time,  trouble  and  expense. 

In  Pennsylvania,  prior  to  the  act  of  1901.  no  lien  could  be 
had  unless  the  labor  done  was  of  a  material  nature,  such  as  the 
carpentering,  mason  work,  etc.,  it  being  held  in  one  case  that 
no  lien  could  be  had  by  persons  furnishing  an  elevator  car  or 
cage  to  the  one  contracting  with  the  owner  of  a  structure  to 
place  an  elevator  therein.  Under  the  present  law  this  rule  is 
changed.      Section  2  of  the  act  of  June  4,  1901,  provides  sub- 


474  ARCHITECTS  AND  BUILDERS 

stantially  that  every  structure  or  other  improvement  shall  be 
subject  to  a  lien  for  the  payment  of  all  debts  due  the  contractor 
or  sub-contractor  in  the  erection  and  construction  and  removal 
thereof,  in  the  addition  thereto  and  in  the  alteration  and  repair 
thereof,  and  of  the  out-houses,  sidewalks,  yards,  fences,  walls 
or  other  enclosure  belonging  to  said  structure  or  other  improve- 
ment; and  in  the  fitting  up  or  equipment  of  the  same  for  the 
purpose  for  which  the  improvement  is  made,  including  paper- 
hanging,  grates,  furnaces,  heaters,  boilers,  engines,  chandeliers, 
brackets,  gas  and  electric  pipes,  wires  and  fixtures.  Also  for 
like  debts  contracted  by  such  owner  in  the  fitting  up  or  equip- 
ment with  machinery,  gearing,  boilers,  engines,  cars  or  other 
useful  appliances,  of  new  or  old  structures  or  other  improve- 
ments, for  business  purposes,  and  for  like  debts  contracted  by 
such  owner  for  rails,  ties,  pipes,  poles  and  wires,  and  the 
excavations  for  and  laying  and  relaying,  stringing  and  restringing 
said  rails,  pipes  or  wires. 

While  a  contractor  or  sub-contractor  whose  contract  includes 
the  putting  in  of  chandeliers,  the  building  of  fences,  etc.,  will 
have  a  lien  under  the  present  law,  such  would  not  be  the  case 
where  alterations  or  repairs  of  this  kind  are  made,  under  sepa- 
rate contract,  the  price  for  which  did  not  amount  to  over  $ioo. 

It  is  important  in  the  present  connection  to  distinguish 
between  what  constitutes  new  structures  and  alterations.  The 
term  erection  or  structure  as  used  in  the  law  of  mechanics' 
liens  is,  of  course,  applied  in  the  first  place  to  an  entirely  new 
building.  A  rebuilding  of  an  old  erection  upon  a  different  scale, 
and  a  changing  of  it  as  to  the  exterior  into  a  new  structure,  is 
treated  as  such  a  construction  as  may  subject  the  property  to 
a  mechanics'  lien,  for  work  done  or  materials  furnished  for  or 
about  the  erection  of  a  building. 

Section  3  of  the  Pennsylvania  act  of  June  4,  1901,  pro- 
vides that  a  substantial  addition  to  a  structure  or  other  improve- 
ment shall  be  treated  as  a  new  erection  or  construction  thereof, 
and  that  every  adaptation  of  an  old  structure  or  other  improve- 
ment to  a  new  or  distinct  use,  and  which  effects  a  material 
change  in  the  interior  or  exterior  thereof,  shall  also  be  deemed 
an  erection  or  construction.  Under  the  law  at  present  in  force 
a  mechanics'  lien  may  be  had  for  the  removal  or  demolition  of 
a  structure  as  well  as  for  the  building  or  alteration  thereof. 

Where  a  building  is  unfinished  by  reason  of  the  negligence 
or  interference  of  the  owner,  the  contractor  or  sub-contractor 
may  have  a  lien  for  the  amount  of  the  work  actually  done.     It 


ARCHITECTS  AND  BUILDERS  475 

should  be  carefully  borne  in  mind  that  no  lien  can  be  had  where 
the  building  before  acceptance  by  the  owner  is  destroyed  by  fire 
or  other  casually. 

No  claim  of  a  sub-contractor  is  valid  for  alterations  or  re- 
pairs unless  written  notice  of  an  intention  to  file  a  claim  therefor, 
if  the  amount  due  be  not  paid,  shall  have  been  given  to  the 
owner  on  or  before  the  day  the  claimant  completed  his  work  or 
furnished  the  last  of  his  materials. 

We  will  purposely  omit  in  the  discussion  of  this  subject  the 
requisites  of  notice  and  claim  in  perfecting  a  mechanics'  Hen, 
as  they  are  technical  and  involve  rules  of  procedure.  It  is  our 
object  to  emphasize  the  rights  and  remedies  provided  by  law  for 
the  benefit  of  mechanics,  but  the  methods  by  which  such  rem- 
edies are  to  be  obtained  must  be  most  strictly  followed  out,  and 
in  case  of  a  necessity  for  filing  a  mechanics'  lien  an  attorney 
should  be  consulted. 

Operation  and  E£fect  of  Lien. 

As  a  general  rule  a  mechanics'  lien  can  be  enforced  for  the 
full  amount  due  and  unpaid  for  the  work  and  materials  fur- 
nished. The  recovery  in  an  action  to  enforce  the  lien  is  lim- 
ited to  the  amount  claimed  in  the  notice,  claim  or  statement 
filed  pursuant  to  statute,  with  interest.  Thus,  where  a  sub-con- 
tractor's lien  notice  does  not  cover  labor  to  be  perfonned  or 
materials  to  be  furnished,  he  is  not  entitled  to  a  lien  for 
what  was  done  or  furnished,  after  filing  the  notice.  In  the  case 
of  a  sub-contractor  or  material  man  claiming  under  the  contract 
with  the  contractor,  the  claimant  is  entitled  to  enforce  a  lien 
up  to  the  amount  fixed  by  such  contract,  although  the  contract 
price  includes  a  profit  over  the  value  of  the  labor  or  materials 
furnished.  Under  the  law  in  Pennsylvania  a  limitation  is  placed 
upon  the  above  rule  to  the  effect  that  a  person  other  than  the 
original  contractor  cannot  enforce  a  lien  for  more  than  the 
reasonable  value  of  the  work  done  or  materials  furnished. 

The  lien  may  include  interest  on  the  amount  of  the  claim 
from  the  time  it  became  due,  but  where  it  is  sought  to  enforce 
a  lien  for  the  reasonable  value  of  what  was  done  and  furnished, 
and  the  precise  amount  due  is  neither  fixed  nor  ascertainable  by 
mere  mathematical  calculation,  the  demand,  not  being  liquidated, 
does  not  draw  interest. 

There  is  respectable  authority  which  supports  the  view 
that  the  right  to  a  lien  accrues  when  the  claimant  has  com- 


476  ARCHITECTS  AND  BUILDERS 

pleted  the  work  or  furnished  the  materials  and  that  the  lien 
attaches  to  the  property  at  the  time  when  the  contract  is  made 
or  recorded.  However,  the  general  rule  of  law  is  that  the 
right  to  a  lien  accrues  at  the  time  of  the  commencement  of 
the  work  or  the  furnishing  of  materials  out  of  which  the  lien 
arises,  or  the  commencement  of  a  building  or  improvements  for 
work  done  or  materials  furnished  for  the  construction  of  which 
the  lien  is  claimed.  The  Supreme  Court  of  Pennsylvania  has 
decided  that  v/hen  the  plan  of  a  building  is  changed  and  greatly 
enlarged  while  in  course  of  construction,  the  liens  of  mechanics 
and  material  men  subsequent  to  such  change  relate  only  to 
the  commencement  of  the  alteration  on  the  ground,  and  are 
subject  to  all  liens  which  had  then  fastened  on  the  land. 

In  view  of  the  above-stated  rule  it  becomes  important  to 
determine  what  constitutes  the  commencement  of  a  building  or 
improvement  which  regulates  the  right  of  a  mechanic  and  mate- 
rial man  to  file  a  lien.  The  commencement  of  a  building  or  im- 
provement within  the  meaning  of  the  lien  law  is  the  visible  com- 
mencement of  actual  operations  on  the  ground  for  the  erection 
of  a  building;  the  doing  of  some  work  or  labor  on  the  ground, 
such  as  beginning  to  excavate  for  the  foundation,  walling  the 
cellar  or  work  of  a  like  description,  which  everyone  can  readily 
see  and  recognize  as  the  commencement  of  a  building,  and  which 
is  done  with  the  intention  and  purpose  then  formed  to  con- 
tinue the  work  until  the  completion  of  a  building.  But  work 
which  is  merely  preparatory  to  building  operations  at  some 
future  time,  and  does  not  of  itself  tend  to  contribute  directly  to 
the  erection,  such  as  clearing,  leveling,  filling  up  or  fencing  the 
property,  does  not  constitute  a  commencement  for  the  purpose 
of  fixing  the  time  to  which  the  lien  relates. 

A  temporary  cessation  of  work,  where  the  design  of  build- 
ing is  not  abandoned,  and  work  is  subsequently  resumed  and 
prosecuted  without  any  substantial  change  in  the  design,  will 
not  prevent  the  relation  back  of  liens  to  the  thne  of  the  original 
commencement.  However,  where  the  project  is  abandoned  and 
work  is  afterward  resumed  under  a  new  contract  between  dif- 
ferent parties,  a  mechanics*  lien  cannot  relate  back  to  the  time 
when  the  building  was  originally  commenced,  but  relates  back 
only  to  the  time  of  the  recommencement. 

What  the  Lien  Binds. 
No  personal  liability  on  the  part  of  a  defendant  is  created 
by  the  filing  of  a  statement  of  claim  under  the  mechanics'  lien 
system  and  the  taking  of  steps  to   recover  thereon;  the  sole 


ARCHITECTS  AND  BUILDERS  477 

object  is  to  secure  the  compensation  of  the  claimant,  by  a  lien 
binding  the  premises  for  the  improvement  of  which  he  has 
expended  labor  or  furnished  material ;  when  this  source  is  ex- 
hausted, the  law  has  fulfilled  its  part,  and  the  mechanic  or 
material  man  who  is  not  fully  satisfied  must  seek  redress  through 
some  other  channel.  The  question  of  importance  which  next 
presents  itself  is  what  the  lien  binds,  whether  only  the  struc- 
ture erected,  without  the  ground,  or  both?  In  Pennsylvania 
recent  statutes  make  direct  provision  that  the  lien  shall  extend 
to  the  ground  covered  by  the  building,  and  to  so  much  other 
ground  immediately  adjacent  thereto,  and  belonging  in  like 
manner  to  the  same  owner,  as  may  be  necessary  for  the  ordi- 
nary and  usual  purposes  of  the  structure.  In  fact,  the  general 
rule  extends  the  lien  to  the  building  and  so  much  of  the  land 
upon  which  it  is  situated  as  is  necessary  to  its  convenient  use 
and  occupation,  and  ordinarily  covers  the  entire  lot,  tract  or 
parcel  upon  which  the  building  or  improvement  is  situated.  Land 
outside  of  these  limits  is  not  subject  to  the  lien,  but  the  parties 
may  by  contract  extend  the  area  of  property  to  be  covered 
by  the  lien  beyond  what  would  be  subject  thereto  under  the 
statutes. 

If  the  person  by  whom  the  contract  for  the  building  or 
improvement  was  made  was  not  then  the  owner  or  the  abso- 
lute owner,  but  subsequently  becomes  the  absolute  owner  or 
acquires  a  larger  interest  than  he  formerly  had,  the  lien  attaches 
to  the  subsequently-acquired  interest.  Where  the  property  sub- 
ject to  the  lien  has  been  sold  and  converted  into  money,  the 
Court  will  follow  the  fund  into  the  hands  of  the  person  who 
converted  the  property  into  money  and  have  the  lien  satisfied  out 
of  such  funds. 

Priorities  of  Liens. 

All  mechanics'  liens  on  the  same  property  and  arising  out 
of  the  erection  of  the  same  building  and  improvement  stand 
on  an  equality  and  share  equally  in  the  amount  realized  if  it 
be  not  sufficient  to  pay  all  in  full,  regardless  of  whether  the 
claims  are  for  labor  or  for  materials,  or  of  the  times  when  the 
several  claimants  entered  into  their  contracts  for  what  they 
did  or  furnished. 

The  thirteenth  section  of  the  Pennsylvania  act  of  1901  pro- 
vides that  mechanics*  claims  shall  be  paid  out  of  the  proceeds 
of  a  judicial  sale  of  the  property  described  therein,  in  prefer- 


478  ARCHITECTS  AND  BUILDERS 

ence  to  any  estate,  charge  or  lien  of  which  the  claimant  had  not 
actual  or  constructive  notice  at  that  time,  except  municipal  or 
tax  claims  and  the  exemption  allowed  by  law.  In  the  case  of 
a  claim  for  a  new  structure,  an  estate,  charge  or  lien,  of  which 
the  claimant  had  actual  or  constructive  notice  before  the  date  of 
visible  commencement  upon  the  ground,  if  given  to  secure  ad- 
vancement of  money,  knowingly  to  be  furnished  for  the  purpose 
of  making  the  improvement  in  whole  or  in  part,  shall  have  with 
prior  liens  and  encumbrances,  a  preferential  claim  upon  the 
funds  raised  by  a  judicial  sale  of  said  property  to  the  extent  only 
of  the  actual  value  of  the  property  immediately  prior  to  such 
visible  commencement  of  the  work ;  but  the  proceeds  of  such  sale, 
above  such  value,  shall  be  applied  to  the  payment  of  the  mechan- 
ics' claim  in  preference  to  such  estate,  charge  or  lien.  The  lien 
of  every  such  claim  shall  bind  only  the  interest  of  the  party 
named  as  owner  of  the  property  at  the  time  of  the  contract  or 
subsequently  acquired  by  him. 

Where  the  property  is  subject  to  a  mortgage  or  other 
encumbrance  at  the  time  when  the  building  is  commenced,  such 
lien  is  entitled  to  priority  over  any  mechanics'  lien  arising  out 
of  the  improvement  of  the  property.  Mechanics'  liens  are 
entitled  to  priority  over  all  subsequent  liens  and  encumbrances 
attaching  to  the  property  after  the  commencement  of  the  build- 
ing or  of  the  work  of  furnishing  of  materials  out  of  which  the 
lien  arises.  A  mortgage  given  to  secure  future  advances  has 
priority  over  mechanics'  liens  subsequently  arising  to  the  extent 
of  the  full  amount  advanced,  including  what  is  advanced  after, 
as  well  as  before,  the  accrual  of  the  mechanics'  liens.  In  New 
Jersey  it  is  well  settled  that  purchase  money  mortgages,  includ- 
ing amounts  to  be  advanced  by  the  vendor,  are  entitled  to  priority 
over  mechanics'  liens  to  the  extent  of  the  money  actually 
advanced  pursuant  thereto,  provided  the  mortgage  is  recorded  or 
registered  before  any  lien  claim  is  filed. 

A  mechanics'  lien  attaching  to  property  when  it  comes  into 
the  mortgagor's  hands  is  superior  to  a  mortgage  executed  pre- 
viously and  covering  that  property  as  after-acquired  property; 
but  a  mechanics'  lien  for  improvements  made  on  the  property 
after  the  title  was  acquired  by  the  mortgagor  is  inferior  to  a 
mortgage  executed  before  title  was  acquired,  but  covering  the 
property  as  after  acquired  property. 

Where  the  holder  of  a  mortgage  which  is  prior  to  a  mechan- 
ics' lien  becomes  the  purchaser  of  the  property  at  a  tax  sale,  it 
has  been  held  that  such  purchase  extinguishes  the  mortgage  debt. 


ARCHITECTS  AND  BUILDERS  479 

and  the  mechanics'  lien  remains  the  only  lien  upon  the  property  in 
the  hands  of  the  purchaser. 

Under  the  Pennsylvania  enactments  all  moneys  due  on 
account  of  wages  for  labor  and  services  to  specified  classes 
of  employees,  for  any  period  not  exceeding  six  months  pro- 
ceeding the  sale  of  the  establishment  in  which  such  em- 
ployee may  be  engaged,  shall  be  a  lien  upon  such  establishment 
to  the  extent  of  the  interest  of  the  employer,  provided  the 
amount  due  such  employee  shall  not  exceed  $200,  and  he  shall 
within  a  specified  time  have  filed  a  claim  in  the  Prothonotary's 
office.  No  mortgage  or  instrument  by  which  a  lien  is  created 
operates  to  impair  or  postpone  the  lien  so  given  for  wages,  nor 
does  such  lien  for  wages  operate  to  impair  the  lien  of  mortgages 
or  judgments  entered  before  such  labor  is  performed.  In  the 
event  of  a  sale  upon  execution,  such  an  employee-claimant,  if  he 
desires  his  claim  to  be  preferred  and  first  paid  out  of  the  pro- 
ceeds, must,  before  the  sale,  give  written  notice  of  his  claim  and 
the  amount  thereof  to  the  officer  executing  the  writ. 

As  to  whether  claims  of  this  character  have  a  priority  of  pay- 
ment out  of  funds  for  distribution  in  the  hands  of  the  Sheriff 
over  mechanics'  liens  not  proceeded  upon  to  judgment,  but 
attaching  before  the  work  is  done  for  which  the  claim  for  wages 
is  set  up,  the  authorities  are  not  uniform,  but  it  has  been  decided 
that  where  the  wage  claimant  for  whose  compensation  a  judg- 
ment has  been  confessed  by  the  employer  neglects  to  give  the 
notice  required  by  statute  to  be  given  to  the  officer  executing 
the  writ  of  execution,  payment  of  his  claim  is  postponed  to  the 
payment  of  mechanics'  liens  attaching  before  the  confession  of 
such  judgment. 

Bond  to  Discharge  Lien. 

The  statutes  of  most  States  provide  for  the  execution  and 
filing  of  a  bond  by  the  owner  or  the  contractor  for  the  use  of 
persons  in  whose  favor  liens  might  accrue,  conditioned  for  the 
payment  of  claims  which  might  be  a  basis  of  liens,  which  bond 
is  substituted  as  security  in  place  of  the  lien  on  real  estate. 

It  has  been  held  that  a  bond  executed  by  the  contractor 
as  principal  without  the  owner  of  the  property  uniting  therein  is 
sufficient  to  discharge  a  lien  filed  by  a  material  man. 

The  owner  of  any  interest  in  property  on  which  there  is 
a  mechanics'  lien  may  become  the  principal  in  a  bond  for  the 
purpose  of  discharging  the  lien,  and  it  is  not  necessary  that  ail 


■480  ARCHITECTS  AND  BUILDERS 

the  owners  or  persons  interested  should  unite  in  the  bond  as 
principals.  In  a  number  of  States  statutes  have  been  passed 
allowing  any  person  having  an  interest  in  property  upon  which 
a  mechanics'  lien  is  claimed  to  give  a  bond  to  dissolve  the  lien 
upon  his  interest,  the  purpose  being  to  allow  anyone  possessing  an 
interest  in  the  whole  or  any  part  of  the  realty  to  free  his  title 
from  such  an  encumbrance  and  to  prevent  the  land  from  being 
sold  to  satisfy  the  lien. 

When  a  bond  is  given,  approved  and  filed,  as  provided  by 
law,  the  effect  is  to  prevent  liens  from  attaching,  and  discharge 
liens  which  have  been  already  filed.  The  filing  of  a  bond  after  a 
suit  to  enforce  a  lien  has  been  commenced  does  not  necessitate 
the  dismissal  of  the  suit,  but  after  the  bond  has  been  filed  it  is 
error  to  decree  a  lien. 

The  obligation  of  the  sureties  on  a  bond  given  by  the  con- 
tractor conditioned  for  the  payment  to  persons  performing  labor 
and  furnishing  materials  of  the-  value  of  such  labor  and  mate- 
rials is  collateral  to  the  obligation  of  the  contractor  to  pay 
therefor,  and  can  be  enforced  against  them  only  to  the  extent 
that  the  same  obligations  could  be  enforced  against  the  con- 
tractor. The  fact  that  the  principal  procured  the  signature  of  a 
surety  upon  the  promise  that  the  principal  would  afterward 
contain  the  signature  of  another  surety  which  was  not  done  will 
not  relieve  the  surety  from  obligation  on  a  bond  delivered, 
approved  and  filed  as  the  law  requires. 

A  mechanics'  lien  may  be  discharged  according  to  the  law 
generally  prevailing  by  the  owner  depositing  in  Court  an  amount 
sufficient  to  satisfy  the  claim  or  the  balance  due  from  him  to 
the  contractor.  The  claimant  is  not  entitled  to  receive  the 
amount  deposited  until  he  has  established  his  claim  and  lien 
on  the  land  in  an  action  brought  for  that  purpose,  and  the  pay- 
ment into  Court  is  not  an  acknowledgment  of  the  claimant's  right 
or  a  waiver  of  defenses. 

Extinguishment  of  Lien. 

The  courts  will  not  readily  hold  that  a  mechanics'  lien,  once 
duly  acquired,  has  been  lost  or  extinguished  in  the  absence  of 
circumstances  tending  to  show  a  waiver  or  making  it  inequitable 
that  the  lien  should  remain  in  force.  Thus  the  right  to  a  lien 
is  not  lost  because  in  an  attempted  settlement  the  lienor  re- 
fused an  offer  of  more  than  he  subsequently  recovered,  no 
tender  having  been  made.     The  right  of  a  sub-contractor  to 


ARCHITECTS  AND  BUILDERS  461 

enforce  a  mechanics'  lien  on  a  property  is  not  affected  by  the 
insolvency  of  and  the  appointment  of  a  receiver  for  the  prin- 
cipal contractor,  or  lost  by  the  sub-contractor's  failure  to  con- 
solidate his  claim  for  labor  with  others  in  an  action  before  a 
Justice  of  the  Peace  against  the  original  contractor,  where  such 
other  claims  are  wholly  disconnected  with  his  lien  and  have  no 
relation  to  the  transaction  out  of  which  it  arose.  Where  a 
contract  provides  that  payment  shall  be  made  for  work  on  final 
estimate  and  certificate  of  an  architect  approving  the  work,  and 
a  showing  that  the  work  is  free  from  all  liens,  and  after  the 
final  estimate  is  made  and  the  certificate  procured,  the  con- 
tractor, being  refused  payment,  files  his  lien,  the  fact  that  sub- 
contractors subsequently  file  liens  for  work  will  not  defeat  the 
contractor's  lien. 

While  it  has  been  held  that  the  destruction  of  the  building 
or  improvement  out  of  which  the  lien  is  claimed  to  arise  defeats 
the  lien  upon  the  land,  the  more  general  rule  is  that  a  mechanics' 
lien  which  has  attached  to  a  building  or  improvement  and  the 
land  on  which  it  is  situated  is  not  defeated  or  extinguished  by  the 
destruction  of  the  building  or  improvement  by  fire  or  other  casu- 
alty, but  remains  effective  against  the  land,  even  though  the 
building  or  improvement  is  destroyed  before  the  work  thereon 
is  completed. 

A  contractor  for  an  entire  building  not  being  excused  from 
performance  because  of  the  destruction  of  the  building,  may, 
if  the  building  be  destroyed  before  completion  and  not  rebuilt, 
lose  his  right  to  compensation  for  what  was  previously  done  or 
furnished,  and  in  such  case  there  could,  of  course,  be  no  lien. 

A  sale  or  conveyance  of  the  premises  after  the  lien  has 
attached  thereto  does  not  affect  the  rights  of  the  person  filing 
the  lien.  This  is  true  as  a  general  rule,  even  though  such  con- 
veyance was  made  before  the  filing  of  the  lien  notice  or  claim 
required  by  statute  to  perfect  the  lien,  provided,  of  course,  the 
claimant  perfects  his  lien  within  the  statutory  period.  It  is 
immaterial  that  the  purchaser  bought  the  property  in  good  faith, 
and  without  notice,  for  the  mere  fact  that  buildings  or  im- 
provements are  being  erected  on  the  property  constitutes  con- 
structive notice  of  the  mechanics'  liens  to  persons  dealing  with 
the  property.  As  the  lien  extends  to  the  entire  lot  or  tract  on 
which  the  building  or  improvement  is  situated,  a  part  thereof 
cannot  be  sold  free  from  the  lien,  and  it  has  been  held  that 
where  labor  and  materials  for  the  improvement  of  three  houses 
were  furnished  under  a  single  contract,  subsequent  purchasers 

81 


482  ARCHITECTS  AND  BUILDERS 

of  two  of  the  lots,  with  notice,  were  not  entitled  to  complain 
that  their  lots  were  held  responsible  for  the  entire  debt. 

With  reference  to  work  done  or  materials  furnished  after  a 
conveyance  of  the  property,  it  has  been  held  that  a  lien  may  be 
established  covering  the  same  if  the  work  was  done  and  the 
materials  furnished  pursuant  to  the  original  contract  after  a  sale 
of  the  premises.  However,  it  should  be  borne  in  mind  that 
materials  furnished  after  a  sale,  not  in  pursuance  of  the  orig- 
inal contract  and  without  the  knowledge  of  the  purchaser,  but 
merely  to  preserve  the  right  of  lien,  are  not  the  subject  of  a  lien. 
An  assignment  by  the  owner  for  the  benefit  of  creditors  does  not 
prejudice  the  right  of  mechanics'  lien  claimants,  but  their  lien 
as  to  the  property  to  which  it  has  attached  remains  superior  to 
the  rights  of  general  creditors. 

Where  the  purchaser  of  land  on  which  there  is  a  mechanics' 
lien  agrees  to  pay  off  the  same,  and  save  his  grantor  harmless 
therefrom,  the  lien  may  be  enforced  against  the  land  in  the 
hands  of  the  purchaser  without  first  exhausting  the  remedy 
against  the  grantor. 

A  judicial  sale  of  property  under  a  lien  prior  to  a  mechan- 
ics' lien  divests  the  latter  lien  and  the  claimant  must  look  to  the 
surplus  proceeds  of  the  sale  for  satisfaction.  Where  there  are 
several  mechanics'  liens  arising  out  of  the  same  improvements 
and  thus  of  equal  rank,  a  sale  under  one  of  the  liens  passes  the 
land  free  from  all  others. 

Release  of  Lien. 

A  release  of  a  mechanics'  lien  must  be  founded  upon  a 
consideration,  and  if  the  consideration  fails  the  release  is  void 
and  the  lien  may  be  enforced.  A  release  executed  by  mechan- 
ics or  material  men  during  the  progress  of  the  construction  of 
a  building,  of  all  manner  of  liens,  "which  we  or  any  or  either 
of  us  now  have  or  might  or  could  have  on  or  against  the  said 
building,"  is  an  unconditional  agreement  to  look  to  the  personal 
responsibility  made  during  the  progress  of  the  work,  is  operative 
to  discharge  the  building  from  mechanics'  liens  as  effectively  as 
though  made  after  its  completion,  and  releases  the  lien  for  labor 
done  and  materials  furnished  after  as  well  as  before  its  execu- 
tion. 

Vendors  who  permit  a  purchaser  who  has  failed  to  comply 
with  the  terms  of  his  purchase  to  continue  the  expenditure  of 
money  in  making  improvements  after  the  expiration  of  the  time 


ARCHITECTS  AND  BUILDERS  483 

for  payment  cannot  by  notice  terminate  his  interest  in  the 
property  so  as  to  cut  off  the  lien  of  a  carpenter  employed  by 
the  purchaser  to  erect  buildings  on  the  land,  but  the  latter  may 
enforce  his  claim  subject  to  the  right  of  the  vendors  to  recover 
the  purchase  money. 

The  right  to  a  mechanics'  lien  is  not  an  estate  or  interest 
in  land  which  must  be  surrendered  or  released  in  the  manner 
provided  by  law  for  such  estates  or  interests.  Where  a  release 
names  no  person  to  whom  it  is  made  and  expresses  no  con- 
sideration, evidence  may  be  given  to  show  the  consideration  and 
to  determine  in  whose  favor  it  was  intended  to  be  made.  It  was 
recently  agreed  that  where  it  was  mutually  agreed  between  the 
owner  and  the  contractor  that  he  should  stop  work  and  receive 
pay  for  what  was  already  done,  and  the  contractor  thereupon 
signed  a  paper  releasing  the  owner  from  further  liability,  this 
did  not  amount  to  a  release  of  the  lien  for  what  was  then  done. 

A  contractor  who  under  one  general  contract  with  the 
owner  constructed  upon  contiguous  lots  two  separate  buildings, 
each  requiring  the  same  amount  and  character  of  labor  and 
material,  after  having  been  paid  more  than  half  the  contract  price 
released  one  of  the  houses  and  lots  from  his  lien  under  an  agree- 
ment with  the  owner  that  he  should  retain  a  lien  on  the  other  for 
the  balance  due  on  his  contracts.  It  was  held  in  this  case  that  the 
contractor  could  file  and  enforce  his  lien  on  the  remaining  house 
and  lot  for  the  entire  balance  due  him  where  there  were  no 
third  persons  whose  interests  were  affected  by  the  lease. 

In  conclusion,  there  remains  to  be  considered  the  effect  of  a 
release.  A  release  by  a  contractor  of  his  lien  for  erecting  a 
building,  as  against  a  mortgagee  receiving  his  mortgage  on  the 
faith  thereof,  covers  the  claims  for  all  work  done  on  the  building 
whether  before  or  after  the  release  was  executed.  Where  a  con- 
tractor who  is  responsible  for  the  erection  and  completion  of  a 
building  according  to  terms  agreed  on  executes  a  release  of  all 
claims  for  mechanics'  liens,  neither  the  contractor  nor  the  sub- 
contractors and  material  men  are  entitled  to  liens.  Even  though 
sub-contractors  may  have  released  their  lien,  if  the  contractor 
fails  to  complete  his  contract,  and  they  are  subsequently  em- 
ployed by  the  owner  to  complete  certain  work,  they  can  enforce 
a  lien  for  what  is  done  under  the  latter  employment. 

A  conditional  release  is  not  effective  unless  the  terms  upon 
which  it  is  conditioned  are  complied  with  by  the  person  asserting 
a  right  under  it.  A  release  of  the  lien  as  to  part  of  the  prop- 
erty covered  thereby  does  not  destroy  the  lien  on  the  rest  of  the 


484  ARCHITECTS  AND  BUILDERS 

property.  However,  if  one  building  is  released  an  item  for  work 
or  materials  therein  cannot  be  included  in  a  lien  on  the  remaining 
buildings. 

Under  those  statutes  which  conform  to  the  system  prevailing 
in  Pennsylvania,  the  right  of  a  sub-contractor,  material  man,  or 
workman  to  a  lien  is  not  dependent  upon  the  state  of  accounts 
between  the  owner  and  contractor,  and  hence  the  lien  is  not 
defeated  or  affected  by  any  payment  to  the  contractor. 


MONEY. 

Defined — Loaned — Paid — Received — Legal  Tender. 

THERE  is  no  more  popular  subject  of  interest  than  money, 
and  we  will  endeavor  to  apply  the  important  legal  prin- 
ciples concerning  money  loaned,  paid  and  received,  which 
principles  it  is  most  essential  to  carefully  bear  in  mind. 

Money  is  defined  as  a  universal  medium  or  common  stand- 
ard, by  comparison  with  which  the  value  of  all  merchandise  may 
be  ascertained.  In  its  strict  technical  sense  it  is  coined  metal, 
usually  gold  or  silver,  upon  which  the  Government  stamp  has 
been  imposed  to  indicate  its  value.  In  its  more  popular  sense, 
any  currency,  tokens,  bank  notes  or  other  circulating  medium  in 
general  use  as  the  representative  of  value. 

A  bequest  in  a  will  of  money  does  not  include  securities — 
nothing  passing  except  coin,  lawful  currency  and  funds  deposited 
in  the  bank  for  safekeeping.  It  has  been  held  that  a  savings  bank 
deposit,  being  of  the  nature  of  an  interest-drawing  investment, 
not  subject  to  the  immediate  order  of  the  drawer,  does  not  pass 
by  a  bequest  of  money  in  a  will.  Some  courts  have  held  that 
the  word  "money"  will  pass  any  sort  of  personal  property  in 
order  to  carry  into  effect  the  intention  of  the  testator,  aftd  so 
notes,  IxDnds  and  mortgages  have  been  included*  under  the  word 
and  in  one  case  the  proceeds  of  realty.  In  general,  however,  the 
term  "money"  is  more  restricted. 

A  legal  tender  is  an  oflfer  to  do  a  thing  conformably  to  the 
requirements  of  the  law  in  the  case,  and  money  that  may  be 
validly  oflFered  in  payment  of  a  debt  is  legal  tender.  Under 
the  Federal  statutes  gold  coins,  silver  coins  to  the  amount  of  five 
dollars  in  one  payment,  and  coins  of  smaller  denominations  than 
one  dollar  (the  aggregate  of  which  shall  not  exceed  ten  dollars) 
shall  be  legal  tender.  United  States  notes  in  payment  of  all 
debts,  public  and  private,  except  duties  on  imports  and  interest 
on  the  public  debt,  demand  Treasury  notes  and  interest-bearing 
Treasury  notes  (with  the  exception  that  the  latter  are  not  legal 
tender  in  payment  of  notes  issued  by  a  bank)  are  legal  tender. 
National  bank  notes  are  legal  tender  in  payment  of  taxes,  excise 
duties,  public  lands  and  of  all  other  dues  to  the  United  States 
except  duties  on  imports.    They  are  also  legal  tender  of  all  debts 

(48s) 


486  MONEY 

of  the  United  States  and  in  payment  of  debts  due  the  national 
banks. 

Express  contracts  to  pay  coined  dollars  can  be  satisfied 
only  by  the  tender  of  payment  of  coined  dollars,  and  judgments  in 
suits  brought  on  such  contracts  may  be  entered  for  coined  dol- 
lars and  parts  of  dollars,  such  contracts  not  being  within  the 
legal  tender  acts.  A  contract  made  in  this  country  and  to  be 
performed  here  for  the  payment  of  a  sum  stated  in  the  denomina- 
tions for  a  foreign  currency  is  a  money  contract  the  same  as  if 
made  and  to  be  performed  in  the  country  where  such  currency 
is  legal  money. 

Where  a  contract  for  the  payment  of  money  is  made  in 
one  country  payable  in  the  currency  of  that  country  and  a  suit 
for  breach  is  brought  in  another,  the  plaintiff  can  recover  such 
a  sum  in  the  currency  of  the  country  where  suit  is  brought  as 
approximates  most  nearly  to  the  amount  to  which  the  party  is 
entitled  in  the  country  where  the  contract  was  made,  calculated 
by  the  real  and  not  the  nominal  par  of  exchange.  In  order  to 
show  the  value  of  foreign  money  the  proof  required  is  similar  in 
kind  to  that  necessary  to  show  the  value  of  chattels  in  a  distant" 
market,  such  as  will  enable  the  jury  to  express,  in  our  money, 
the  value  of  the  sum  shown  by  the  proof  to  be  due  in  foreign 
money.  When  payment  of  wages  is  made  to  an  American  sea- 
man at  a  foreign  port,  in  foreign  coin,  such  coin  is  to  be  valued 
at  its  rate  in  the  home  port  under  the  laws  of  the  United  States. 

Money  Lent. 

As  a  general  rule  an  action  for  money  lent  will  He  wherever 
one  loans  or  advances  money  at  the  request  of  another,  the  law 
implying  a  contract  to  pay  therefor  where  there  is  no  express 
contract.  Where,  however,  money  is  lent  for  the  express  pur- 
pose of  enabling  the  borrower  to  do  some  act  prohibited  by  law, 
the  lender  cannot  recover  it;  but  money  loaned  on  a  contract 
made  void  by  statute,  the  defect  being  in  the  form  of  a  contract, 
and  not  in  the  essence  of  the  transaction,  may  be  recovered.  An 
action  for  money  lent  cannot  be  maintained  upon  a  collateral 
undertaking  to  guarantee  advances  to  be  made  to  a  third  person. 
So,  too,  where  one  party  to  a  contract  advances  money  on  the 
contract,  supposing  that  the  other  is  able  to  perform  his  part, 
when  at  that  time  performance  was  impossible,  the  money  cannot 
be  recovered  back  in  an  action  for  money  lent. 

A  loan  of  money  is  payable  on  demand  where  no  time  for 


MONEY  487 

pa>Tnent  is  fixed,  and  where  one  lends  money  to  be  repaid  or 
applied  as  he  may  direct,  if  no  direction  be  g^iven,  the  promise  to 
repay  may  be  enforced  without  a  demand.  Where  money  is  ad- 
vanced on  the  faith  of  a  contract  for  the  delivery  of  a  crop,  and 
only  a  part  of  it  is  delivered,  plaintiff  may  recover  the  amount 
received  by  defendant  over  and  above  the  value  of  the  part 
delivered,  without  a  return  or  offer  to  return  such  part. 

In  an  action  for  money  lent  the  person  or  persons  to  whom 
the  credit  was  given  and  also  the  person  receiving  the  benefit 
of  the  loan  are  liable;  and  if  a  joint  promise  may  be  implied, 
the  liability  is  joint.  Money  paid  by  one  person  to  another  is 
presumed,  in  the  absence  of  any  explanation  as  to  the  cause  of 
payment,  to  be  paid  because  due,  and  not  by  way  of  a  loan ;  and 
where  plaintiff  gives  another  money  which  some  time  previously 
he  received  from  that  other,  and  the  circumstances  strongly  tend 
to  show  that  it  was  put  in  plaintiff's  hands  for  safekeeping,  it 
is  not  material  error  to  charge  that  plaintiff's  possession  does  not 
raise  the  presumption  of  ownership.  Upon  a  certain  loan  two 
promissory  notes  were  given,  one  with  security  and  the  other 
without;  the  legal  presumption  raised  under  such  circumstances 
is  that  the  aggregate  sum  was  loaned  to  the  maker  of  the  notes, 
and  that  the  lender  agreed  to  look  to  him  exclusively  for  the 
payment  of  the  second  note.  Where  the  only  evidence  of  a  loan 
are  drafts  of  the  defendant  on  the  plaintiff,  and  it  appears  that 
the  drafts  were  drawn  for  goods  consigned  by  defendant  to 
plaintiff,  and  defendant  sets  up  a  counterclaim  for  a  balance 
due  on  the  goods,  the  case  turns  on  the  price  agreed  to  be  paid 
for  the  goods  and  the  burden  of  proving  this  is  on  the  plaintiff. 

What  evidence  will  be  sufficient  to  establish  a  loan  neces- 
sarily depends  on  the  facts  and  circumstances  of  the  individual 
case,  and  is  a  question  for  the  jury.  In  a  recent  case  A,  upon 
the  representations  of  B  and  C,  advanced  money  on  B's  draft, 
and  it  was  held  that  if  C,  although  he  niade  no  wilfully  false 
representations  to  induce  the  advance,  yet  received  part  of  the 
money  from  B  by  way  of  division  of  the  money,  he  would  be 
liable  for  the  amount  so  received.  An  I.  O.  U.  is  sufficient  evi- 
dence in  an  action  for  money  loaned,  although  it  is  not  addressed, 
and  no  proof  is  given  that  U.  means  the  plaintiff,  except  his 
producing  the  writing. 

Money  Paid. 

An  action  for  money  paid  may  be  maintained  in  every  case 
in  which  there  has  been  a  payment  of  money  by  plaintiflf  to  a 
third  party,  at  the  request  of  defendant,  with  an  undertaking  ex- 


488  MONEY 

press  or  implied  to  repay  the  amount,  and  it  is  immaterial 
whether  defendant  is  relieved  from  a  liability  by  the  payment  or 
not.  The  request  to  pay  and  the  payment  according  to  it  con- 
stitute the  debt;  and  whether  the  request  be  direct,  as  where 
the  party  is  expressly  desired  by  defendant  to  pay,  or  indirect, 
where  he  is  placed  by  him  under  a  liability  to  pay,  and  does 
pay,  makes  no  difference. 

Although  an  action  of  assumpsit  (the  ordinary  action  to 
collect  a  debt)  cannot  be  maintained  upon  the  mere  voluntary 
payment  of  a  debt  to  another  person,  yet  if  one  person,  in  order 
to  protect  his  own  interest,  pays  a  debt  for  which  another  is 
legally  and  personally  liable,  the  law  will  imply  an  assumpsit 
on  the  part  of  the  latter  to  the  former.  A  request  will  be  im- 
plied where  the  consideration  consists  in  plaintiff's  having  been 
compelled  to  do  that  which  defendant  was  legally  compellable  to 
do.  It  is  important  to  bear  in  mind  the  following  principle  of  law : 
Where,  in  order  to  protect  his  property,  real  or  personal,  the 
owner  pays  off  an  outstanding  encumbrance  thereon,  which 
another  has  undertaken  or  is  legally  liable  to  pay,  he  may  recover 
from  such  other  the  amounts  so  paid  by  him  in  an  action  for 
money  paid. 

A  person  who  has  been  compelled  for  the  protection  of  his 
interests  to  pay  taxes  for  which  another  is  legally  and  personally 
liable,  may  recover  the  amount  so  paid  from  him  whose  duty  it 
was  to  pay  such  taxes.  It  has  been  held  that  where  the  title  to 
land  is  in  dispute,  and  the  taxes  thereon  are  paid  by  one  of  the 
claimants,  and  the  claims  of  the  other  party  to  the  title  are  ulti- 
mately established,  the  money  so  paid  as  taxes  must  be  refunded 
with  interest. 

Where  one  person,  although  himself  under  a  legal  liability, 
pays  a  sum  for  which  another  is  primarily  liable,  he  may  recover 
from  the  latter  the  amount  so  paid.  It  is  not  indispensable  ordi- 
narily to  an  action  for  money  paid  that  the  payment  should 
have  been  in  money.  A  payment  in  any  medium  which  the  par- 
ties regard  as  equivalent  to  money,  such  as  goods,  chattels,  secu- 
rities, credits  or  services,  is  sufficient  to  support  the  action. 

The  giving  of  a  bill  of  exchange  or  negotiable  note  for  the 
debt  of  another  may  be  regarded  as  payment  and  an  action  for 
money  paid  may  be  maintained.  But  since  a  mere  obligation  to 
pay  is  not  the  same  as  payment,  a  bond  given  for  the  debt  of 
another  is  not  such  a  payment  as  will  support  an  action  for 
money  paid,  and  this  is  an  important  distinction  to  note.  An 
action  for  money  paid  does  not  lie  except  upon  a  previous  re- 


MONEY  489 

quest  or  a  subsequent  ratification  on  the  part  of  defendant  or 
his  authorized  agent.  But  where  money  or  its  equivalent  has 
been  paid  for  the  use  of  another,  the  request  or  ratification 
may  be  either  expressed  or  implied.  The  request,  as  well  as 
the  promise,  will  be  implied  where  the  consideration  consists  in 
plaintiflf  having  been  compelled  to  do  that  which  defendant  was 
legally  compellable  to  do,  or  where  defendant  has  adopted  and 
enjoyed  the  benefit  of  the  payment.  A  request  to  one  person 
to  pay  a  sum  of  money  will  not  authorize  another,  who  advances 
the  money,  to  recover  it  in  action  for  money  paid,  brought  in  the 
name  of  the  person  to  whom  the  request  was  made.  It  should  be 
noted,  however,  that  a  mere  voluntary  payment  for  the  benefit 
of  another  gives  to  the  party  so  paying  no  right  of  action  against 
the  party  for  whose  benefit  the  payment  was  made,  unless  the 
latter  subsequently  ratifies  it. 

Voluntary  payments  may  be  divided  into  two  classes — some- 
times money  has  been  expended  for  the  benfit  of  another  person 
under  such  circumstances  that  an  option  is  allowed  him  to  adopt 
or  decline  the  benefit;  in  this  case,  if  he  exercises  his  option  to 
adopt  the  benefit,  he  will  be  liable  to  repay  the  money  expended, 
but  if  he  declines  the  benefit  he  will  not  be  liable.  But  sometimes 
money  is  expended  for  the  benefit  of  another  person  under  such 
circumstances  that  he  cannot  help  accepting  the  benefit ;  in  fact, 
he  is  bound  to  accept  it;  in  this  case  he  has  no  opportunity  of 
exercising  any  option,  and  he  will  be  under  no  liability  to  repay 
money,  advanced  on  his  behalf. 

Where  two  persons  from  their  common  funds  have  paid  a 
debt  of  another,  they  may  maintain  a  joint  action  of  assumpsit 
for  the  money  paid;  but  where  a  judgment  against  a  firm,  which 
a  third  person  has  agreed  to  satisfy  in  consideration  of  a  receipt 
of  the  full  amount  thereof,  but  fails  to  do  so,  is  paid  oflf  by  one 
partner  individually,  he  may  recover  from  such  third  person  in 
an  action  for  money  paid  without  joining  his  partner  as  a  party 
plaintiflf.  The  measure  of  damages  in  an  action  for  money  paid 
for  the  use  and  benefit  of  another  is  the  sum  actually  paid  by 
plaintiflF  together  with  interest  from  the  time  of  payment. 

Where,  whether  through  wrong,  inadvertence  or  mistake, 
one  person  is  wrongfully  credited  on  account  or  in  settlement  of 
accounts  with  the  payment  of  money  to  which  another  is,  in 
equity  and  good  conscience  entitled,  the  latter  may  maintain  an 
action  for  money  had  and  received  to  his  use  against  the  person 
so  credited.  Thus  an  agent  who  has  settled  an  account  with  his 
principal,  as  having  been  paid  by  himself  to  the  creditor,  is  liable 


490  MONEY 

to  the  latter  as  for  money  received  to  his  use.  So  likewise  where 
an  attorney  or  agent  has  discharged  a  debt  due  to  his  principal, 
and  applied  that  debt  to  pay  his  own  debt,  the  amount  of  the 
debt  so  discharged  may  be  recovered  by  him. 

In  connection  with  the  subject  of  money  loaned  and  re- 
ceived, the  Legislature  of  Pennsylvania  at  its  recent  session 
enacted  a  law  permitting  money  loan  companies  or  individuals 
operating  under  a  license  to  charge,  in  addition  to  six  per  cent, 
interest  on  the  amount  of  money  loaned,  a  ten  per  cent,  broker- 
age fee. 

The  question  in  an  action  for  money  had  and  received  is: 
to  which  party  does  the  money  in  equity,  justice  and  law  belong? 
All  that  the  plaintiff  need  show  is  that  the  defendant  holds 
money  which  in  equity  and  good  conscience  belongs  to  him. 

The  rule  is  well  settled  that  an  action  for  money  had  and 
received  will  lie  to  recover  money  paid  by  the  plaintiff  to  the 
defendant  for  a  consideration  which  has  wholly  failed,  unless  the 
failure  of  consideration  is  due  to  some  fault  on  the  part  of  the 
plaintiff  himself.  Money  paid  under  a  mutual  mistake  as  the 
price  of  that  which  has  no  legal  existence  or  validity  may  be 
recovered  back  as  paid  without  consideration  where  the  vendor 
is  responsible  for  the  mistake  or  represents  a  person  so  respon- 
sible. Where  one  person  has  received  money  as  an  indemnity 
in  which  another  has  a  right  to  share,  the  latter  may  maintain  an 
action  for  money  had  and  received  for  his  portion.  Likewise  an 
action  for  money  had  and  received  may  be  maintained  by  one 
tenant  in  common  to  recover  his  share  of  the  proceeds  of  the 
common  property,  real  or  personal,  from  his  co-tenant,  by  whom 
they  have  been  received. 

In  order  to  support  an  action  for  money  had  and  received, 
there  must  be  some  privity  existing  between  the  parties  in  relation 
to  the  money  sought  to  be  recovered.  This  privity  may,  however, 
be  either  implied  or  express.  The  weight  of  authority  is  to  the 
effect  that  no  further  privity  is  required  than  that  which  results 
from  one  person's  having  another's  money  which  he  has  no 
right  conscientiously  to  keep.  In  such  cases  the  law  implies  a 
promise  that  he  will  pay  it  over.  Privity  in  this  connection  exists 
between  one  who  receives  money  or  its  equivalent  under  a  promise 
or  duty  to  pay  it  over  to  a  third  person.  When  money  to  be  paid 
on  a  contract  under  seal  is,  by  the  terms  of  the  contract,  made 
payable  to  one  not  a  party  thereto,  such  person  may  sue  in  assump- 
sit for  money  had  and  received,  using  the  sealed  instrument  as 
evidence  of  his  right  to  recover. 


MONEY  491 

Where  there  are  two  claimants  for  the  same  money  and  one 
of  them  is  recognized  as  being  entitled  to  it  by  the  person  from 
whom  it  is  due,  and  is  paid,  the  other  cannot  sue  him  to  recover 
the  money,  for  the  reason  that  having  received  the  money  under 
a  claim  of  right  in  himself,  the  law  will  not  imply  any  contract 
or  promise  by  him  to  hold  the  money  for  the  use  of  the  other 
claimant,  or  to  pay  it  over  to  him,  and,  therefore,  there  is  not, 
under  the  circumstances,  any  privity  of  contract  on  which  to  found 
the  action.  However,  where  the  liability  of  the  person  from 
whom  the  money  was  due  has  been  discharged  by  payment  to 
one  claimant  who  does  not  assert  any  hostile  claim  to  the  whole 
amount,  it  has  been  held  that  another  claimant  who  is  rightfully 
entitled  to  share  in  the  money  may  maintain  an  action  for  money 
had  and  received  against  the  claimant  so  paid. 

Numerous  Contingencies. 

If  an  agent  is  employed  by  several  principals,  the  common 
employment  creates  a  relation  and  privity  between  the  principals 
such  as  will  sustain  an  action  for  money  had  and  received  by  one 
against  another  to  recover  money  belonging  to  the  former  and 
paid  over  by  the  agent  to  the  latter.  One  in  whose  behalf  money 
is  borrowed  without  authority  but  to  whose  use  it  is  applied  by 
the  borrower  is  not  liable  to  the  lender  as  for  money  had  and 
received. 

As  a  general  principle  of  law,  to  sustain  an  action  for  money 
had  and  received,  it  must  appear  that  the  money  in  question 
belonged  to  plaintiff;  that  it  was  secured  by  defendant  without 
plaintiff's  consent  and  without  giving  any  valid  consideration,  or 
if  with  plaintiff's  consent,  upon  a  consideration  which  has  failed. 
Any  surplus  arising  on  the  sale  of  a  security  for  a  debt  may  be 
recovered  in  an  action  for  money  had  and  received  by  the  person 
entitled  thereto,  whether  the  original  debtor  or  a  subsequent 
mortgagee. 

In  cases  where  property  is  conveyed  by  a  debtor  to  a  trustee 
to  be  sold  for  the  benefit  of  creditors  who  sells  the  property  for 
more  than  enough  to  satisfy  all  claims,  a  creditor  for  whose 
benefit  the  trust  was  created  may  maintain  an  action  for  money 
had  and  received  against  the  trustee.  Such  an  action  will  also 
lie  against  one  who  has  received  double  payment,  to  recover  the 
overplus. 

It  frequently  happens  that  one  person  receives  money  from 
another  for  a  particular  purpose,  and  neglects  or  refuses  to  apply 
it  to  such  purpose.     If  such  be  the  case,  the  money  may  be 


492  MONEY 

recovered  back  in  an  action  for  money  had  and  received.  This 
same  rule  appHes  where  money  is  received  for  a  purpose  which 
is  afterward  abandoned  or  which  cannot  be  accomphshed. 

An  action  for  money  had  and  received  will  always  lie  where 
one  has  obtained  money  from  another  by  oppression,  imposition, 
extortion  or  deceit,  and  the  law  implies  a  promise  from  such 
person  to  return  it  to  the  lawful  owner,  whose  title  thereto  cannot 
be  annulled  by  the  fraudulent  or  unjust  dispossession.  Money 
paid  on  a  raised  check  may  be  recovered  where  the  one  seeking 
recovery  has  not  by  negligence  prejudiced  the  rights  of  the  per- 
son from  whom  recovery  is  sought. 

In  an  action  for  money  had  and  received  it  is  immaterial 
how  the  money  may  have  come  into  defendant's  hands,  and  the 
fact  that  it  was  received  from  a  third  person  will  not  affect  his 
liability,  if  in  equity  and  good  conscience  he  is  not  entitled  to 
hold  it  against  the  true  owner.  It  has  been  decided  that  in  order 
to  sustain  the  action  under  consideration  it  is  not  necessary  that 
a  payment  made  to  defendant  by  a  third  person  with  plaintiff's 
money  should  have  been  involuntary,  but  only  that  it  should  have 
been  made  without  plaintiff's  consent.  Where,  however,  one 
who  has  embezzled  money  transfers  it  to  another  in  due  course 
of  business,  mere  ground  of  suspicion  of  defect  of  title  or  knowl- 
edge of  circumstances  which  would  excite  suspicion  in  the  mind 
of  a  prudent  man  or  gross  negligence  on  the  part  of  the  transferee 
will  not  defeat  his  title  as  against  the  owner,  the  test  being 
honesty  and  good  faith  on  the  part  of  the  transferee  and 
not  diligence. 

An  action  for  money  had  and  received  cannot  be  resorted  to 
where  there  is  a  special  contract  open  and  unexecuted  and  the 
breach  of  the  contract  is  the  basis  of  the  action.  Even  though 
a  special  contract  exists  if  it  has  been  completely  executed  so 
that  only  the  duty  to  pay  money  remains,  a  recovery  may  be  had 
in  an  action  for  money  had  and  received.  So  likewise  the  action 
lies  where  money  is  deposited  upon  a  contract  by  which  the 
depositee  undertakes  to  do  something  and  the  contract  is  wholly 
unperformed.  Where  a  broker  disobeys  instructions  in  selling 
grain  which  he  has  bought  for  his  principal,  deposits  made  by 
his  principal  as  security  may  be  recovered  in  assumpsit.  So 
money  deposited  with  another  as  security  against  loss  from 
any  decline  in  the  value  of  goods  to  be  purchased  for  the 
depositor  may  be  recovered  in  an  action  of  assumpsit  if  the  party 
purchasing  the  goods  neglects  to  sell  them  according  to 
instructions  of  the  depositor. 


MONEY  493 

Persons  Entitled  and  Liable. 

It  is  only  one  having  the  legal  title  to  the  money  in  whose 
favor  the  law  raises  a  promise  to  pay  and  who  may  maintain  an 
action  for  money  had  and  received.  The  action  may  be  main- 
tained by  a  trustee  and  lies  in  favor  of  a  personal  representative 
either  in  his  own  name  or  in  his  representative  capacity.  Where 
the  cause  of  action  accrued  after  his  decedent's  death  and  the 
money  if  recovered  would  be  assets,  so  an  administrator  who  has 
paid  to  a  distributee  an  amount  in  excess  of  what  was  due  him, 
and  has  made  a  final  settlement  of  his  accounts,  may  maintain  an 
action  for  the  excess  in  his  own  name,  since  he  is  personally 
chargeable  with  the  excess.  One  who  purchased  real  estate 
subject  to  an  encumbrance  which  he  supposed  to  be  valid  and 
who  afterward  paid  it  off  cannot  maintain  an  action  to  recover 
back  the  amount  of  such  payments  upon  discovering  that  the 
encumbrance  was  procured  by  fraud,  as  he  was  not  the  party 
defrauded.  One  who  at  another's  request  advances  money  for 
him,  being  entitled  to  look  to  the  latter  or  his  estate  for  reimburse- 
ment, cannot  maintain  an  action  for  money  had  and  received 
against  the  person  to  whom  the  money  was  advanced.  It  has 
recently  been  held  that  an  action  for  money  had  and  received 
cannot  be  maintained  by  a  corporation  to  recover  a  sum  of  money 
received  by  a  fonner  director  as  a  bribe  for  resigning  his  office 
and  procuring  control  of  the  corporation  to  be  turned  over  to  the 
purchaser  for  corrupt  purposes. 

An  action  lies  against  one  into  whose  hands  money  actually 
belonging  to  the  plaintiflf  can  be  traced,  as  well  as  where  he 
received  the  money  in  the  first  instance.  The  recovery,  how- 
ever, is  limited  to  cases  where  money  is  received  for  the  plaintiff 
by  some  one  standing  in  a  fiduciary  capacity  to  the  plaintiff.  An 
action  for  money  had  and  received  may  be  sustained  against  an 
agent  who  has  received  money  to  which  the  principal  has  no  right, 
if  the  agent  has  had  notice  not  to  pay  it  over.  But  if  the  money 
is  paid  over  with  intent  to  pass  it  to  the  credit  of  the  principal, 
before  notice  is  given  to  the  agent,  no  action  will  ordinarily  lie 
against  the  latter  for  its  recovery. 

If  a  debtor  places  money  which  he  owes  his  creditors  in  the 
hands  of  his  agent  or  servant  to  discharge  the  debt,  the  creditor 
may  maintain  an  action  against  the  servant  or  agent  if  he  retains 
the  money. 

But  if,  after  money  has  been  placed  by  the  debtor  in  the 
hands  of  an  agent  to  be  paid  a  creditor,  the  creditor  fails  to  sue 


494  MONEY 

the  agent  until  the  debtor  recalls  the  money  in  his  hands,  the 
creditor  can  maintain  no  action  against  the  agent.  If  a  debtor 
makes  an  overpayment  to  the  creditor's  agent,  through  mistake, 
and  the  money  is  transmitted  by  the  agent  to  the  principal,  the 
agent  is  liable  to  the  debtor  for  the  excess  in  an  action  for 
money  had  and  received. 

If  the  money  is  obtained  by  the  agent  by  compulsion  or 
extortion  it  seems  that  an  action  will  lie  against  him,  although 
it  has  been  paid  over  to  his  principal,  unless  the  payment  was 
made  expressly  for  the  use  of  the  principal. 

The  rule  is  quite  elementary  that  to  enable  a  person  to  main- 
tain an  action  for  money  had  and  received,  it  is  necessary  for  him 
to  establish  that  the  person  sought  to  be  charged  had  received 
money  belonging  to  him  or  to  which  he  is  entitled;  that  is  the 
fundamental  fact  on  which  the  right  of  action  depends. 

Where  money  is  sent  to  the  treasurer  of  a  corporation  for 
stock  which  is  never  delivered,  the  corporation  and  not  its 
treasurer  is  liable. 

If  money  is  paid  through  mistake  to  plaintiff's  wife,  in  his 
presence  with  his  consent  and  approval  and  he  knew  she  was  not 
entitled  to  it,  he  is  liable  therefor  in  an  action  for  money  had 
and  received. 

In  order  to  enable  a  party  who  is  entitled  to  rescind  a 
contract  on  account  of  failure  of  consideration  or  non-perform- 
ance of  the  other  party,  to  bring  an  action  for  the  money  which 
he  has  paid  on  account  of  it,  he  must  restore  or  tender  what  he 
has  received  in  part  performance,  unless  the  right  is  waived. 

One  who  receives  money  in  advance  on  a  contract  which 
he  is  without  authority  to  make,  and  which,  he  afterward  refuses 
to  fulfil  is  liable  without  any  previous  demand.  The  doctrine  is 
stated  in  a  number  of  decisions  and  text-books  that  where  there 
is  a  debt  or  duty  to  pay  money  presently,  not  dependent  on  any 
contingencies,  an  action  may  be  brought  without  any  previous 
demand.    Otherwise  a  previous  demand  is  necessary. 

In  a  recent  case  A,  having  a  draft  on  a  bank  in  New  York, 
for  $i,ooo,  two-thirds  of  which  belonged  to  himself  and  one- 
third  to  B,  put  such  draft  into  the  hands  of  B,  to  receive  the  money 
thereon  and  to  divide  the  avails  in  that  proportion,  and  B  received 
the  money,  and  after  a  reasonable  time  had  elapsed  A  sought  to 
recover  his  share  in  an  action  for  money  had  and  received,  against 
B,  without  previous  demand  or  request,  it  was  held  that  no  such 
demand  or  request  was  necessary. 

Where  one  had  money  belonging  to  another  rightfully  and 


MONEY  495 

lawfully  in  his  possession  the  law  requires  that  it  should  first 
be  demanded  of  him  before  an  action  can  be  maintained  against 
him  therefor.  Thus  where  one  receives  money  as  trustee,  and 
does  nothing  amounting  to  an  abuse  of  the  trust  or  inconsistent 
with  the  understanding  or  agreement  of  the  parties,  he  is  not 
liable  in  an  action  for  money  had  and  received  without  a  previous 
demand.  However,  if  there  has  been  an  abuse  of  the  trust  no 
demand  is  necessary. 

If  a  bank  upon  which  a  check  is  drawn  payable  to  a 
particular  person  or  order  pays  the  amount  of  the  check  to 
one  presenting  it,  with  a  forged  endorsement  of  the  payee's  name, 
both  parties  supposing  the  endorsement  to  be  genuine,  a  right 
of  action  to  recover  back  the  money  accrues  at  the  date  of  the 
payment,  and  the  Statute  of  Limitations  begins  to  run  from 
that  date. 


EXECUTORS  AND  ADMINISTRATORS. 

Appointment  and  Qualification — Ancillary  Administration — 
Powers  and  Duties — Assets  of  Estate — Claims  Against — 
Accounts — Discharge. 

IT  IS  quite  customary  for  business  men,  in  disposing  of  their 
property,     to     appoint    business     associates     executors     or 

trustees,  with  power  to  conduct  or  manage  their  affairs  for 
particular  purposes  and  for  Hmited  periods  of  time.  Although 
the  majority  consult  attorneys  with  reference  to  their  duties 
under  such  appointments,  it  is  quite  essential  that  those  acting 
as  executors,  administrators  or  trustees  should  possess  a  knowl- 
edge of  the  general  principles  of  law  governing  their  qualifi- 
cations, duties,  etc.  It  will  consequently  be  our  object  to  dis- 
cuss briefly  the  law  on  this  subject,  which  is  of  general  interest 
to  business  men. 

When  a  person  dies  leaving  property,  his  estate  is  usually  set 
apart  to  be  administered  or  settled  under  the  immediate  super- 
vision of  the  courts.  The  main  objects  of  such  jurisdiction  are 
that  the  personalty  of  the  deceased,  together  with  income  and 
profits,  be  properly  collected,  preserved  and  duly  accounted  for; 
that  his  just  debts  and  the  charges  consequent  upon  his  death  and 
the  settlement  of  his  estate  be  paid  and  adjusted,  and  that  the 
residue  of  the  estate  be  distributed  among  such  persons  and  in 
such  proportions  as  the  will  of  the  deceased,  if  there  be  one, 
or  if  not,  the  statutes  of  distribution,  commonly  known  as  the 
intestate  laws,  may  prescribe. 

The  duty  of  settling  and  distributing  the  estate  is  vested 
in  persons  who  are  termed  the  personal  representatives  of  thfe 
deceased.    They  are  of  two  classes,  executors  and  administrators. 

Definitions. 

An  executor  may  be  defined  as  the  person  to  whom  the  execu- 
tion of  the  last  will  or  testament  of  personal  estate  is  by  the 
testator's  appointment  confided.  An  administrator  is  a  person 
authorized  by  a  competent  Court  to  manage  and  distribute  the 
estate  of  an  intestate,  or  of  a  testate  who  has  no  executor.  This 
definition  is  given  in  Bouvier's  Law  Dictionary,  except  the  phrase 
"by  a  competent  Court."    This  phrase  is  necessary  to  the  com- 

(496) 


EXECUTORS  AND  ADMINISTRATORS  497 

pletion  of  the  definition,  for  the  administrator  derives  all  his 
authority  from  the  Court  which  appoints  him. 

An  executor  is  not  vested  with  any  title  or  power  until  he 
becomes  so  vested  by  letters  testamentary.  When  a  testator 
by  his  will  devises  his  real  estate  to  an  executor  in  trust,  to 
recover  the  rents  and  profits,  or  to  accumulate  the  same,  such 
executor  takes  as  trustee  by  devise  the  instant  the  testator  dies, 
and  becomes  vested  with  all  the  estate  and  all  the  power 
conferred  in  respect  to  the  same.  When  a  testator  devises  his 
real  estate  to  his  executor  in  trust  to  sell  the  same  to  pay  debts 
or  legacies,  the  executor  takes  no  estate  by  the  will,  as  trustee  or 
otherwise.  It  is  a  mere  power,  and  is  an  incident  of  the  office 
of  executor,  as  executor  enabling  him  to  convert  into  actual  per- 
sonalty that  which  is  made  equitably  so  by  the  will. 

Administration  means  the  management  of  the  estate  of  a 
decedent  and  expresses  the  jurisdiction  assumed  by  the  proper 
Court  over  it.  It  includes  more  than  the  mere  collection  of  the 
assets,  the  payments  of  debts  and  legacies,  and  distribution  to 
the  next  of  kin.  It  involves  all  that  may  be  done  rightfully  in 
the  preservation  of  the  assets,  and  all  which  may  be  done  legally 
by  the  administrator  in  his  dealings  with  creditors,  distributees, 
or  legatees,  or  which  may  be  done  by  them  in  securing  their 
rights;  and  it  includes  all  which  may  be  done  in  relation  to 
adverse  claims  to  assets  which  have  come  to  the  possession  of  the 
administrator  as  the  property  of  the  intestate. 

Two  Classes  of  Estates. 

The  estates  of  deceased  persons  fall  into  two  classes;  first, 
testate,  which  includes  those  estates  as  to  the  settlement  of  which 
the  deceased  has  left  directions  embodied  in  a  will,  in  which 
case  the  deceased  is  termed  the  testator;  and,  second,  intestate, 
which  includes  the  estates  of  persons  who  have  left  no  wills. 
The  term  "intestate"  is  also  used  to  designate  a  person  who 
has  died  without  leaving  a  valid  will.  There  may,  however, 
also  be  cases  of  partial  intestacy  where  the  deceased  has  left 
a  will  containing  directions  as  to  the  disposition  of  a  portion  of 
his  property,  but  where  a  portion  is  left  undisposed  of. 

It  is  a  general  principle  of  law  that  real  estate  descends 
directly  to  the  heir  of  the  decedent,  and  that  personal  estate  passes 
to  the  personal  representatives  of  the  deceased.  Nevertheless 
debts  and  charges  remain  obligatory  upon  the  estate  so  long  as 
property  of  the  deceased  may  be  found  for  their  satisfaction, 

32 


498  EXECUTORS  AND  ADMINISTRATORS 

and  hence  if  the  personal  assets  prove  insufficient,  the  real 
estate  may  be  applied  to  make  up  the  deficiency.  Administration 
is  usually  a  necessity  where  a  person  dies  leaving  unpaid  debts 
and  property  which  may  be  made  available  to  pay  them,  and 
where  a  person  claims  to  be  a  creditor  of  the  estate  and  applies  for 
the  appointment  of  an  administrator,  it  is  not  necessary  that  he 
should  conclusively  prove  the  existence  of  the  alleged  debts,  but 
if  he  makes  a  prima  facie  case  this  is  sufficient  to  authorize  and 
require  the  appointment  of  an  administrator.  However,  in 
order  for  an  alleged  debt  to  form  the  basis  of  a  grant  of 
administration,  it  must  be  a  legal  claim  upon  the  deceased  or 
Jiis  estate. 

The  law  of  executors  and  administrators  will  be  considered 
in  the  order  of  their  appointment  and  qualifications,  their  powers 
and  duties,  termination  of  their  office  by  removal,  revocation 
or  resignation,  and  last,  the  remedies  pertaining  to  their  office, 
including  actions  by  and  against  them,  etc. 

If  the  deceased  has  left  a  will,  appointing  an  executor,  the 
will  should  be  probated  as  soon  as  possible.  The  general  rule 
of  law  is  that  the  place  of  a  decedent's  last  domicile  shall  deter- 
mine the  probate  jurisdiction  to  grant  letters  and  supervise  the 
settlement  of  his  estate,  and  the  sole,  or  at  least  the  principal, 
grant  of  letters  ought  to  be  taken  out  and  the  will  proved  in 
the  country,  the  State,  and,  indeed,  the  very  county  where  dece- 
dent was  domiciled  at  the  time  of  his  death.  In  case  one  dies 
while  traveling  outside  the  State  or  country  of  his  domicile,  the 
foreign  Court  has  no  jurisdiction,  although  one  who  roams  after 
leaving  permanently  one  domicile  has  been  held  to  have  settled 
down  where  he  died.  In  Pennsylvania  the  will  should  be  de- 
posited as  promptly  as  possible  after  death  with  the  Register 
of  Wills  "of  the  county  within  which  was  the  family  or  principal 
residence  of  the  decedent  at  the  time  of  his  death,  and  if  the 
decedent  has  no  such  residence,  then  with  the  Register  of  the 
county  where  the  principal  part  of  the  goods  and  estate  of  such 
decedent  shall  be."  The  Pennsylvania  statutes  do  not  require 
two  subscribing  witnesses  to  the  will,  but  if  there  be  subscribing 
witnesses  they  should  be  called  to  prove  the  same.  In  any  event 
two  witnesses  must  prove  the  signature  to  the  will. 

When  no  will  is  left  and  there  are  no  creditors  of  the  estate 
or  the  creditors  agree,  distribution  of  the  estate  may  be  had  with- 
out recourse  to  the  courts,  by  agreement  of  all  interested  parties, 
being  of  full  age  and  competent,  provided  no  necessity  exists  for 
bringing  suit  to  collect  the  property  or  for  other  purposes,  such 


EXECUTORS  AND  ADMINISTRATORS  499 

as  the  formal  transfer  of  title.  The  existence  of  a  will  appoint- 
ing an  executor  generally  renders  it  necessary  for  the  estate  to  be 
settled  through  the  courts,  which  alone  have  cognizance  of  such 
matters,  although  in  several  States  statutes  have  been  passed 
which  provide  that,  if  the  testator  so  requests  in  his  will,  the 
will  may  be  carried  out  by  the  executor  without  any  probate,  or 
with  probate  and  without  further  proceedings  in  Court,  according 
as  the  special  statute  may  be  worded. 

In  case  of  intestate  estates  there  is  no  reason  why  the  estate 
should  be  put  to  the  expense  and  delay  of  taking  out  administra- 
tion in  cases  where  it  is  in  such  shape  that  this  mode  of  settle- 
ment can  be  employed  without  injustice  or  irregularity.  There- 
fore, if  there  are  no  creditors  and  all  the  parties  entitled  to  the 
estate  as  distributees  are  of  age  and  competent  to  transact  busi- 
ness, and  agree  to  divide  up  the  estate  without  taking  out  admin- 
istration, and  the  property  is  of  such  a  kind  as  not  to  require 
formal  transfers,  such  as  would  be  necessary  in  transferring 
shares  of  stock  in  corporations  or  deposits  in  savings  banks,  and 
is  in  the  possession  of  the  distributees,  so  that  no  suit  at  law  is 
necessary  in  order  to  recover  possession  of  it,  then  by  agreement 
among  the  persons  entitled  to  distribution  the  estate  may  be 
divided  up  among  them  without  the  appointment  of  any  adminis- 
trator. If  distribution  is  once  made  under  such  an  agreement, 
none  of  the  distributees  can  afterward  require  administration, 
because  of  the  estoppel  of  their  agreement  to  divide  without 
administration.  If,  however,  there  are  any  creditors  of  the 
estate  who  are  not  satisfied  with  this  method  of  settling  the  same, 
and  insist  on  the  appointment  of  an  administrator,  they  can  com- 
pel this  to  be  done,  or  in  default  can  take  administration  them- 
selves, since  they  are  entitled  to  have  some  one  appointed  repre- 
senting the  estate  whom  they  can  sue  for  their  claims,  or  else 
to  be  themselves  placed  in  such  a  position  that  as  administrators 
they  can  satisfy  their  own  claims. 

Appointment  and  Qualification. 

As  we  observed  before,  an  executor  derives  his  authority 
from  the  will  appointing  him.  The  interest  of  every  executor  in 
his  testator's  estate  is  what  the  testator  gives  him,  and  a  testator 
may  make  a  trust  absolute  or  qualified  respecting  either  the 
subject  matter,  the  place  where  the  trust  shall  be  discharged,  or 
the  time  when  the  executor  shall  begin  or  during  which  he  shall 
continue  to  act  as  such.    The  executor's  appointment  also  may  be 


500  EXECUTORS  AND  ADMINISTRATORS 

made  conditional,  as  upon  his  giving  security  for  paying  the 
debts  and  legacies,  or  possessing  certain  qualifications  at  the 
time  of  the  testator's  death,  and  unless  the  conditions  are  fulfilled 
the  nomination  goes  for  naught. 

Where  several  executors  are  named  or  designated  together, 
they  are  intended  to  be  co-executors  and  should  be  qualified  to- 
gether, all  being  thus  legally  regarded  as  an  individual  in  place  of  a 
sole  executor,  and  of  various  persons  named  as  co-executors  he 
or  they  who  may  be  alive  and  v^^illing  and  competent  to  accept  the 
trust  on  the  testator's  death  can  alone- be  deemed  qualified  for 
the  office.  Instead  of  appointing  co-executors  to  serve  together, 
a  testator  may  name  two  or  more,  substituting  one  after  another 
in  order,  so  that  if  the  first  dies  or  cannot  act,  the  next  may  act 
and  so  on.  A  direction  in  a  will  that  if  the  executor  appointed 
thereby  should  die,  a  certain  other  person  should  be  his  successor 
with  all  the  authority  and  power  that  he  would  have  had  if 
appointed  in  the  first  instance,  requires  the  appointment  of  such 
person,  although  it  occurred  after  testator's  death. 

Where  a  will  is  proved,  it  is  the  duty  of  the  Court  to  issue 
letters  testamentary  to  the  person  named  as  executor  upon  his 
application.  As  a  general  rule  of  law,  all  persons  who  are  capa- 
ble of  making  wills  are  capable  of  becoming  executors,  and  the 
law  even  extends  further  than  this.  An  infant,  although  not  of 
full  testamentary  capacity,  may  be  appointed  executor,  but  the 
statutes  in  most  States  disqualify  an  infant  from  performing  the 
functions  of  a  sole  executor,  so  that  some  other  person  must  be 
appointed  administrator  until  the  executor  reaches  his  majority. 
The  fact  that  a  person  named  as  executor  is  an  alien  or  a  non- 
resident does  not  disqualify  him  to  act  as  executor.  If  an  exec- 
utor does  not  wish  to  perform  his  duties,  and  the  law  cannot 
compel  one  nominated  as  executor  to  act  as  such,  the  safest  policy 
is  to  file  a  written  renunciation. 

An  executor  cannot  assign  the  office  to  another,  since  no  one 
to  whom  a  power  relating  to  property  is  given  by  another  on 
account  of  a  special  and  personal  confidence  can  delegate  that 
power  to  another. 

Administrators. 

Statutes  in  the  various  States  regulate  the  right  of  particular 
persons  to  administer  on  the  estate  of  a  decedent,  and  the  priority 
of  right  between  two  or  more  persons  who  ask  for  the  issuance 
of   letters   to   them.     The   principle   which   underlies   the   right 


EXECUTORS  AND  ADMINISTRATORS  501 

to  administer  is  that  the  grant  of  letters  of  administration  shall  be 
made  to  the  person  or  persons  to  whom  the  personal  property  of 
the  deceased,  intestate,  or  the  greater  part  of  it,  descends  as  dis- 
tributees. In  Pennsylvania  it  is  provided  that  letters  of  adminis- 
tration shall  be  granted  to  the  widow  or  surviving  husband  of 
the  testator,  as  the  case  may  be,  or  to  such  of  his  or  her  relations 
or  kindred  as  by  law  are  entitled  to  the  residue  of  his  or  her 
personal  estate,  after  payment  of  his  debts.  Of  those  so  entitled, 
preference  is  first  given  to  such  as  are  in  the  nearest  degree  of 
consanguinity  with  the  decedent,  males  being  preferred  to  fe- 
males. In  case  of  the  refusal  or  incompetency  of  every  person 
letters  of  administration  may  be  obtained  by  one  or  more  of  the 
creditors  of  the  decedent  applying  therefor. 

The  principle  that  the  right  to  administer  the  estate  follows 
the  right  to  the  estate  in  distribution  has  been  recognized  quite 
universally,  the  reason  being  obvious,  in  that  it  gives  the  manage- 
ment of  the  property  into  the  hands  of  the  person  or  persons 
who  will  ultimately  own  it,  and  whose  claim  upon  it  is  only  de- 
ferred until  the  creditors  of  the  deceased  are  paid,  when  the 
property  will  be  vested  in  those  entitled. 

The  right  of  the  husband  to  administer  upon  his  wife's  estate, 
whether  this  right  is  given  by  a  statute  or  decision,  depends 
upon  the  existence  of  a  valid  m.arriage  between  him  and 
the  deceased  at  the  time  of  her  death.  Consequently  if  the  mar- 
riage supposed  to  exist  between  them  is  void  for  any  cause  the 
supposed  husband  has  no  right  of  administration.  Thus  if  there 
was  a  prior  existing  marriage,  or  one  of  the  parties  is  non  com- 
pos mentis  or  under  age  of  lawful  marriage,  the  supposed  hus- 
band has  no  right  to  administer.  If,  however,  there  has  been  a 
valid  marriage  which  has  been  dissolved,  as,  for  instance,  when 
a  divorce  has  been  granted  dissolving  the  marriage  for  desertion, 
etc.,  he  loses  his  right  to  administer.  It  should  be  noted  that  no 
misconduct  of  the  husband  toward  the  wife  bars  his  right  to 
administer,  even  if  it  is  of  such  a  nature  as  to  afford  ground 
for  a  divorce,  unless  a  divorce  has  actually  been  obtained. 

We  noted  that  in  case  of  the  death  of  a  husband,  without 
leaving  a  will,  his  widow  is  first  entitled  to  letters  of  administra- 
tion upon  his  estate.  If  the  widow  renounces,  or  is  incompetent, 
no  one  can  be  appointed  but  one  or  more  of  the  next  of  kin,  if 
competent  and  willing.  The  widow's  right  to  administer  her  hus- 
band's estate  depends  upon  the  legitimacy  of  her  marriage  and 
its  existence  at  her  husband's  death.  If  it  is  void  or  has  been  dis- 
solved by   divorce   she  cannot  claim   the   right   to   administer. 


502  EXECUTORS  AND  ADMINISTRATORS 

There  must  be  proof  that  the  applicant  for  letters  of  administra- 
tion is  the  widow  of  the  deceased,  if  this  fact  is  denied.  Marriage 
may  be  proved  by  evidence  of  cohabitation,  declarations  and 
repute.  If  the  only  evidence  of  this  point  is  the  presumption 
arising  from  cohabitation,  the  evidence  as  to  the  cohabitation 
must  not  be  such  as  to  make  it  doubtful  whether  the  cohabitation 
was  lawful  or  illicit.  In  a  case  in  Pennsylvania  the  testimony  of 
the  widow  to  the  marriage,  corroborated  by  an  entry  in  the 
family  Bible  by  the  deceased  and  a  cohabitation  and  reputation  of 
marriage  for  twenty  years,  was  held  to  be  ample  evidence  of  a 
marriage  though  contradicted  by  admissions  of  the  widow  and 
husband  that  they  were  not  married.  In  some  States  the  Court 
is  given  a  choice  to  appoint  either  the  widow  or  next  of  kin.  In 
such  States  the  widow  will  not  be  appointed  where  she  has 
eloped  from  her  husband,  or  cohabitated  with  another  man,  or 
deserted  or  lived  separate  from  her  husband.  But  if  the  widow 
is  so  entitled  to  the  office  a  separation  does  not  bar  her  right, 
although  by  articles  of  separation  or  any  ante-nuptial  contract 
she  agreed  to  renounce  all  interest  in  her  husband's  estate.  A 
divorce  obtained  by  the  husband  through  fraud,  as  where  he 
deserts  his  wife  and  moves  into  another  State,  and  there  sues  and 
obtains  a  divorce  from  her,  does  not  deprive  her  of  her  right  to 
administer  according  to  a  recent  decision  of  the  Supreme  Court 
of  Pennsylvania.  If  a  widow  expressly  renounces  and  disclaims 
her  right,  and  refuses  to  take  administration,  she  waives  her 
right,  and  will  not  afterward  be  allowed  to  cause  letters  issued  to 
a  third  party  to  be  revoked. 

Next  of  Kin. 

Neither  husband  nor  wife  can  be  regarded  as  next  of  kin 
one  to  the  other,  by  virtue  of  the  marriage  tie  alone,  and  this 
reservation  extends  to  all  marriage  connections,  since  common 
blood  is  the  test  of  consanguinity. 

The  right  to  administration  arising  from  kinship  being 
usually  dependent  upon  the  right  to  share  in  the  distribution  of 
the  decedent's  estate,  the  nearest  of  kin  to  the  decedent  are  as  a 
rule  preferred  to  those  more  remotely  related.  From  among  two 
or  more  persons  equally  akin  to  the  deceased  who  seek  appoint- 
ment as  administrator,  the  Court  may  choose  the  most  suitable. 
The  policy  of  some  States,  such  as  Pennsylvania,  as  was  pointed 
out  previously,  distinctly  places  the  male  next  of  kin  before  the 
female  for  receiving  the  appointment. 


EXECUTORS  AND  ADMINISTRATORS  503 

The  next  of  kin  of  the  deceased  are  ascertained  by  compu- 
tation according  to  the  method  of  the  civil  law.  In  a  few  States 
computation  is  made  according  to  the  rules  of  the  common  law 
which  are  the  same  as  those  of  the  canon  law,  that  is,  to  begin 
at  the  conmion  ancestor,  and  reckon  downward,  and  in  whatever 
degree  the  two  persons,  or  the  most  remote  of  them,  is  distant 
from  the  common  ancestor,  that  is  the  degree  in  which  they  are 
related  to  each  other.  Thus  A  and  his  brother  are  related  ac- 
cording to  the  common  law  in  the  first  degree,  for  from  the  father 
to  each  of  them  is  counted  only  one  step.  A  and  his  nephew  are 
related  in  the  second  degree,  for  the  nephew  is  two  degrees 
removed  from  the  common  ancestor,  that  is,  his  own  grandfather, 
the  father  of  A. 

The  method  of  computing  the  degrees  of  kindred  in  the  civil 
law  is  to  count  upward  from  either  of  the  persons  related  to  the 
common  ancestor,  and  then  downward  again  to  the  other,  reckon- 
ing a  degree  for  each  person  ascending  and  descending.  For 
example,  A  and  his  brother  are  related  according  to  the  civil  law 
in  the  second  degree,  for  from  A  to  his  father,  the  common  ances- 
tor, is  one  degree,  and  thence  descending  to  the  brother  is 
another  degree.  A  and  his  nephew  are  related  in  the  third 
degree,  for  ascending  from  A  to  his  father  is  one  degree,  and 
descending  thence  to  his  brother  is  a  second  degree,  and  to  the 
brother's  son  a  third  degree.  So  a  grandfather  is  by  the  civil 
law  nearer  of  kin  than  an  aunt,  for  it  is  two  degrees  to  the  grand- 
father, while  to  the  aunt  it  is  one  degree  more,  that  is  from  the 
grandfather  to  the  aunt.  It  is  important  as  a  matter  of  practical 
education  to  understand  the  method  of  computing  the  nearest  of 
kin  in  a  family.  In  Pennsylvania  this  is  done  according  to  the 
rules  of  the  civil  law  as  above  explained.  Maryland  is  the  only 
State  in  the  east,  I  believe,  where  the  rules  of  the  common  law  are 
adopted.  If  one  dies  leaving  parents  but  no  children,  the  par- 
ents are  of  the  first  degree,  and  their  rights  are  accordingly 
superior  to  those  of  brothers  and  sisters,  who  stand  in  the 
second  degree,  and  they  will  accordingly  be  preferred  upon  their 
application  for  letters  of  administration. 

Illegitimate  and  adopted  children  have  no  right  to  admin- 
ister unless  this  right  is  specially  conferred  by  statute.  It  often 
happens  that  several  relatives  will  be  found  to  be  equally  near  in 
point  of  kinship  to  the  deceased,  and  the  question  then  arises 
whether  administration  shall  be  granted  to  all,  or  if  not  to  all,  to 
which  of  them  it  shall  be  granted.  In  deciding  upon  this  point 
the  Court  has  discretionary  powers,  but  there  are  several  princi- 


504  EXECUTORS  AND  ADMINISTRATORS 

pies  of  preference  which  are  so  important  and  are  of  such  gene- 
ral application  as  to  deserve  notice. 

In  the  first  place,  it  may  be  laid  down  as  a  leading  principle 
that  the  Court  will  ordinarily  appoint  only  one  administrator,  as 
the  existence  of  two  or  more  renders  the  proceedings  too  compli- 
cated. Even  when  the  parties  interested  are  willing,  and  there 
are  two  applicants,  a  Judge  is  not  bound  to  make  a  joint  appoint- 
ment, but  may  in  his  discretion  appoint  only  one. 

Ordinarily  the  half-blood  is  admitted  with  the  whole  in 
determining  the  next  of  kin,  but  if  among  several  of  equal  degree 
some  are  of  the  half-blood  and  some  are  of  the  whole,  the  latter 
will  generally  be  preferred  in  the  appointment  of  an  administra- 
tor. However,  a  brother  of  a  half-blood  is  generally  preferred  to 
a  sister  of  the  whole  blood,  because  a  male  administrator  is  pre- 
ferred to  a  female.  As  between  a  married  and  an  unmarried 
woman  of  equal  degree  of  kinship  to  the  deceased,  the  unmarried 
woman  will  be  preferred.  A  resident  of  a  State  is  usually  pre- 
ferred to  a  non-resident.  It  need  hardly  be  said  that  an  elder 
child  does  not  stand  in  a  nearer  degree  of  kinship  than  a  younger 
one,  but  an  elder  son  will  be  preferred  to  a  younger  merely  as  a 
matter  of  discretion  of  the  Court. 

Letters  to  Creditor. 

Statutes  in  most  States  generally  provide  for  the  appoint- 
ment of  a  creditor  of  the  deceased  as  administrator  where  no 
application  is  made  within  a  suitable  time  by  those  having  legal 
priority,  or  where  the  latter  prove  incompetent.  Questions  have 
frequently  arisen  as  to  what  constitutes  a  creditor  under  the  law 
in  the  present  connection.  One  whose  claim  against  the  estate  is 
for  the  funeral  expenses  is  a  creditor  of  the  estate,  such  as  an 
undertaker  or  a  relative  who  has  paid  the  bills  for  the  funeral. 
But  one  who  was  a  creditor  of  the  deceased  by  virtue  of  a  cause 
of  action  which  does  not  survive — as,  for  example,  a  breach  of 
promise  of  marriage — is  not  such  a  creditor  as  is  entitled  to  ad- 
minister the  estate.  The  person  applying  for  letters  as  a  creditor 
must  show  that  he  has  a  valid  claim  against  the  estate  of  the 
decedent,  and  if  the  facts  which  he  alleges  do  not  constitute  a 
valid  debt,  his  application  will  be  denied.  To  illustrate,  where  one 
claims  to  be  a  creditor  for  money  loaned  on  stock  of  a  company, 
and  the  transaction  proved  to  be  a  purchase  by  him  of  stock  of 
the  company  from  the  deceased,  as  treasurer  of  the  company,  it 
was  held  that  these  facts  constituted  no  debt  of  the  deceased, 


EXECUTORS  AND  ADMINISTRATORS  505 

but,  if  any,  one  of  the  company,  and  therefore  the  applicant  had 
no  right  to  the  appointment  of  administrator. 

Where  a  decedent  has  left  a  will,  but  such  will  does  not 
nominate  any  executors,  or  none  of  the  persons  named  as  execu- 
tors can  or  will  act  as  such,  the  Court  appoints  a  person  to  per- 
form the  necessary  duties  connected  with  the  settlement  of  the 
estate,  and  such  appointee  is  termed  an  administrator  "with  the 
will  annexed."  Mention  should  be  made  of  the  right  of  the 
residuary  legatee  (person  named  in  the  will  to  receive  the  residue 
of  testator's  estate)  to  letters  of  administration  with  the  will  an- 
nexed, in  preference  to  either  surviving  husband,  widow,  next 
of  kin  or  creditors.  This  right  is  based  upon  the  governing  prin- 
ciple that  the  person  most  beneficially  interested  according  to  the 
terms  of  the  will  should  have  the  preference.  If  the  residuary 
legatee  is  dead,  or  renounces,  or  is  incompetent,  the  grant  of  let- 
ters of  administration  will  go  to  the  other  legatees,  in  accordance 
with  their  interests. 

Sometimes  when  the  interested  parties  are  making  a  contest 
as  to  who  should  distribute  the  estate,  a  temporary  administrator 
is  appointed,  and  in  case  of  such  appointment  the  principle  that 
the  grant  of  letters  follows  the  interest  in  the  estate  has  no  appli- 
cation, for  the  object  of  the  grant  of  letters  is  merely  to  put  the 
estate  in  safe  custody  while  the  parties  interested  are  in  litigation. 

As  a  general  rule  the  right  to  administer  cannot  be  assigned, 
as  it  is  purely  personal.  By  statutes  in  many  States,  including 
Pennsylvania,  those  persons  entitled  to  appointment  as  adminis- 
trators may  nominate  others  in  their  place.  The  right  of  persons 
who  are  entitled  to  administer,  but  who  reside  out  of  the 
State,  to  appoint  some  resident  of  the  State  to  take  admin- 
istration in  their  stead,  is  in  some  States  recognized,  at 
least  as  far  as  a  surviving  husband,  widow  and  next  of  kin  are 
concerned.  By  statute  non-residence  in  a  State  renders  the  per- 
son otherwise  entitled  to  administer  incompetent,  and  in  such  case 
his  appointee  is  also  incompetent.  A  non-resident,  in  such  a  case, 
if  he  wishes  to  gain  a  right  to  nominate,  must  become  a  bona  fide 
resident  of  the  State,  which  involves  actual  residence  in  the  State 
and  intention  to  become  a  resident.  The  Court  will  judge  upon 
all  the  evidence  whether  a  non-resident  has  become  a  bona  fide 
resident.  Thus  where  a  person  came  into  Pennsylvania  upon  his 
brother's  death,  to  look  after  his  affairs,  and  stayed  a  few  days, 
bringing  his  daughter  with  him  and  leaving  his  wife  in  his  for- 
mer residence,  and  then  applied  for  letters  of  adnn'nistration  for 
his  nominee,  the  Court  held  that  he  had  not  gained  a  bona  fide 


5o6  EXECUTORS  AND  ADMINISTRATORS 

residence,  although  he  testified  directly  that  it  was  his  intentions 
to  become  a  resident  when  he  made  the  change,  but  he  could  not 
say  how  long  he  should  keep  the  residence  thus  acquired. 

Acceptance  or  Renunciation. 

The  offices  of  both  executor  and  administrator  may  be  either 
claimed  or  accepted  by  the  person  or  persons  entitled  to  them,  or 
maybe  renounced  by  them.  If  a  person  entitled  to  either  office 
expressly  renounces  the  right,  or  neglects  to  claim  it  after  being 
duly  cited  into  court  for  that  purpose,  he  forfeits  the  right.  An 
executor  may  expressly  accept  the  office  in  writing,  or  by  applying 
for  appointment  in  accordance  with  the  will.  It  is  not  generally 
held  that  the  executor  is  bound  to  accept  the  office  for  merely 
intermeddling  with  the  estate,  and  it  is  said  that  a  trusteeship, 
whether  as  executor  or  otherwise,  cannot  be  imposed  upon  any 
party  except  by  his  own  consent,  or  as  a  consequence  of  his  own 
acts.  Delay  and  inaction  are  generally  treated  as  evidence  of 
refusal.  Even  if  a  person  named  as  executor,  together  with 
others,  pays  the  funeral  expenses,  this  does  not,  according  to  the 
Supreme  Court  of  Pennsylvania,  amount  to  an  acceptance  of 
the  trust. 

The  question  has  arisen  in  several  cases  whether  a  contract 
to  renounce  for  a  valuable  consideration  the  office  of  either 
executor  or  administrator  is  a  valid  one.  The  weight  of  authority 
holds  that  such  a  contract  is  illegal  because  it  would  introduce  so 
much  uncertainty  as  to  who  would  finally  administer  the  estate, 
and  a  testator  would  feel  no  confidence  that  the  person  whom 
he  had  named  as  executor  in  his  will  would  finally  be  the  one  to 
dispose  of  his  estates.  Therefore,  the  courts  will  leave  the  parties 
in  the  condition  in  which  they  have  put  themselves.  A  contract 
to  pay  one  a  sum  of  money  for  acting  as  administrator  is  legal, 
and  so  is  a  contract  to  act  as  administrator  without  making  any 
charge  for  services, ' 

Foreign  Administration. 

We  have  heretofore  considered  the  appointment  and  quali- 
fications of  executors  and  administrators.  In  this  connection  it 
is  timely  to  consider  briefly  foreign  and  interstate  administration 
before  discussing  the  duties  of  executors  and  adminstrators. 

The  appointment  of  an  executor  or  administrator  to  his  office 
is  in  eflfect  creating  an  officer  of  the  Court,  and  his  power  and 
authority,  being  derived  from  the  Court,  can  have  no  absolute 


EXECUTORS  AND  ADMINISTRATORS  507 

force  beyond  the  limits  of  the  State  or  country  which  has  created 
the  Court  appointing  him.  Frequently  it  happens,  however,  that 
decedents  leave  property  situated  in  several  States  or  countries. 
Questions  then  arise  as  to  the  legal  method  of  carrying  out  a 
will  relating  to  such  estate  or  of  administering  the  estate  in  case 
of  intestacy. 

It  may  be  laid  down  as  a  general  principle  that  the  validity 
of  a  will  of  personal  property  is  decided  by  the  laws  of  the 
country  or  State  in  which  the  testator  was  domiciled  at  the  time 
of  his  death.  If  the  will  was  valid,  either  in  general  as  to 
personal  property  or  in  regard  to  any  special  bequests  of  personal 
property  in  the  country  in  which  the  testator  was  domiciled  at 
the  time  of  his  death,  then  it  is  so  far  valid  in  any  other  country 
or  State.  This  rule  is  merely  an  application  of  the  general 
principle  that  movable  property  follows  the  person  of  its  owner, 
and  is  governed  by  the  laws  of  the  place  where  he  has  his 
domicile.  An  apparent  exception  to  this  rule  is  found  in  the  rule 
that  where  a  power  of  appointment  as  to  personal  property  is 
given,  to  be  exercised  by  will,  and  the  power  is  exercised  by  a 
will  executed  in  a  manner  and  form  which  is  valid  in  the  State 
where  the  personal  property  is  situated,  but  not  valid  at  the 
domicile  of  the  testator,  this  will  is  considered  to  be  a  good 
execution  of  the  power.  It  should  be  noticed,  however,  that 
the  question  in  this  regard  does  not  concern  the  validity  of 
the  will,  but  rather  the  execution  of  a  power  in  regard  to  which 
the  courts  are  strict  in  holding  that  it  must  be  correct  in  every 
particular,  according  to  the  law  of  the  place  where  the  prop- 
erty is  situated.  The  rule  governing  the  question  of  domicile 
we  have  considered  in  connection  with  the  jurisdiction  of  the 
courts  to  grant  letters  of  administration.  It  is  important  to 
bear  in  mind  that,  since  the  validity  of  a  will  of  personal  prop- 
erty depends  upon  its  validity  at  the  domicile  of  the  testator, 
and  not  at  the  place  where  the  will  was  originally  executed, 
it  follows  that  if  the  testator  changes  his  domicile  after  mak- 
ing the  will,  into  a  country  where  the  will  is  invalid  and  dies 
there,  the  will  is  invalid  everywhere. 

The  validity  of  a  will  of  real  estate,  as  to  the  capacity 
of  the  testator,  form  and  execution,  depends  upon  and  is 
governed  by  the  law  of  the  place  where  the  land  or  real  estate 
is  situated. 

Probate  of  a  will  in  one  country  is  conclusive  of  the  validity 
of  the  will  in  all  other  countries.  The  judgment  of  a  Court  of 
probate  allowing  the  proof  of  a  will  is  binding  upon  the  rights 


5o8  EXECUTORS  AND  ADMINISTRATORS 

gf  all  persons  interested  in  the  property  named,  although  they 
are  not  named  as  parties  in  the  case.  The  duty  of  a  pro- 
bate Court  when  a  will  is  offered  to  it  for  probate  which 
has  already  been  probated  in  a  foreign  country  consists 
in  deciding  whether  the  record  presented  is  duly  authenticated, 
whether  the  Court  in  which  the  will  purports  to  have  been 
allowed  had  jurisdiction,  and  whether  there  is  any  estate,  real 
or  personal,  in  the  county  in  which  the  will  may  operate,  and 
also  as  to  actual  fraud  in  obtaining  the  probate  of  the  will,  and 
as  to  all  facts  necessary  to  the  establishment  of  a  will.  But  as  to 
the  regularity  of  the  proceedings,  and  their  conformity  to  the 
laws  of  the  country  or  State  where  they  are  had,  both  by  the 
Constitution  of  the  United  States  and  by  the  common  law,  the 
judgment  must  be  conclusive,  as  each  State  is  required  to  give 
such  effect  to  the  judgments  of  the  different  States.  Among 
the  questions  which  are  settled  by  the  foreign  probate  are  the 
capacity  and  sanity  of  the  testator,  including  the  power  of 
a  married  woman  to  make  a  will,  the  due  execution  of  the  will, 
the  competency  of  the  witnesses  and  the  regularity  of  the 
proceedings  for  probate. 

As  to  wills  both  as  to  personalty  and  to  real  estate,  they  are 
to  be  interpreted  according  to  the  laws  and  customs  of  the 
country  or  State  of  the  domicile  of  the  testator,  since  he  is 
supposed  to  have  been  conversant  with  those  laws,  customs  and 
language. 

Principal  and  Other  Administration. 

The  main  rule  or  essential  point  of  the  rules  relating  to 
administration  in  various  jurisdictions  is  that  the  administration 
which  is  taken  out  in  the  country  or  domicile  of  the  deceased  is 
the  principal  administration.  Any  other  administration  is  ancil- 
lary, whether  it  may  or  may  not  be  prior  in  point  of  time  to 
the  administration  in  the  domicile  of  the  deceased.  The  reason 
for  this  distinction  is  evident  in  the  fact  that  the  personal  estate, 
which  is  the  basis  for  administration,  is  governed  by  the  laws  of 
the  domicile  of  the  deceased,  and  all  questions  as  to  the  settle- 
ment and  distribution  of  that  estate  should  be  settled  by  the  laws 
of  that  country  or  State. 

Questions  arising  as  to  the  administration  of  an  estate  which 
is  located  in  various  States  are  often  complicated.  Although  the 
words  "principal"  and  "ancillary"  seem  to  imply  a  relation  of 
dependence  between  the  several  administrations,  this  is  not  the 


EXECUTORS  AND  ADMINISTRATORS  509 

fact.  Each  administration  is  wholly  independent  of  the  other, 
and  the  executor  or  administrator  appointed  in  the  ancillary 
jurisdiction  has  as  complete  and  exclusive  authority  therein  as 
the  principal  one  has  in  the  State  of  domicile.  Ancillary 
administration  may  be  granted  although  there  be  no  principal 
administration. 

Ancillary  administration  being  necessarily  that  of  a  non- 
resident, the  taking  out  of  such  administration  depends  upon  the 
existence  of  assets  in  the  county  where  such  administration  is 
applied  for.  Hence  if  there  are  no  assets  in  the  county  where 
application  is  made  there  cannot  be  any  grant  of  letters,  nor 
will  letters  be  granted  upon  petition  of  a  non-resident  creditor,  if 
there  are  assets  but  no  resident  creditors.  The  Supreme  Court 
of  the  United  States  has  laid  down  definite  principles  governing 
ancillary  administration.  These  rules  are  of  general  application 
throughout  the  United  States,  the  substance  of  which  may  be 
thus  stated: 

Every  ancillary  administration  upon  principles  of  inter- 
national law  is  made  subservient  to  the  rights  of  creditors, 
legatees  and  distributees  in  the  country  where  such  adminis- 
tration is  taken  out,  although  the  distribution  as  to  legatees  and 
distributees  or  heirs  is  governed  by  the  law  of  the  place  of  the 
testator's  or  intestate's  domicile.  The  important  question 
frequently  arising  is  what  is  to  be  done  as  to  the  residue  of  the 
assets,  after  discharging  all  the  debts  and  other  claims  of  the 
deceased,  due  to  persons  resident  in  the  country  where  the 
ancillary  administration  is  taken  out?  Is  it  to  be  remitted  to  the 
domicile  of  the  testator  or  intestate,  or  be  there  finally  settled, 
adjusted  and  distributed  among  all  the  claimants  according  to 
the  law  therein  pertaining,  or  may  creditors,  legatees  or  dis- 
tributees of  any  foreign  country  come  into  the  courts  of  the 
country  granting  such  ancillary  administration  and  there  have 
all  their  respective  claims  adjusted,  and  in  cases  of  insolvency  or 
other  deficiency  of  assets,  what  rules  are  to  govern  in  regard  to 
the  rights,  preferences  and  priorities  of  different  classes  of  claim- 
ants under  the  laws  of  different  countries  seeking  such 
distribution  of  the  residue? 

It  seems  now  to  be  understood,  as  the  general  result  of 
authorities,  that  courts  of  equity  of  the  country  where  the 
ancillary  administration  was  granted  are  not  incompetent  to  act 
upon  such  matters  and  to  decree  a  final  di.stribution  of  the  assets 
to  and  among  the  various  claimants  having  rights  in  the  funds, 
whatever  may   be  their  domicile. 


5IO  EXECUTORS  AND  ADMINISTRATORS 

Therefore,  where  a  decedent  having  property  in  Pennsyl- 
vania dies  domiciled  in  another  State,  where  his  will  was  duly 
proved  or  letters  of  administration  granted,  or  if  a  foreign  exec- 
utor or  administrator  wishes  to  bring  an  action  in  Pennsylvania 
to  recover  or  follow  assets,  it  is  necessary  to  apply  to  the  Register 
of  Wills  of  the  proper  county  for  ancillary  letters  of  adminis- 
tration. If  the  decedent  died  intestate,  the  certificate  of  the 
proper  officer  granting  the  letters  of  administration  duly  authen- 
ticated under  the  act  of  Congress,  must  be  filed  with  the  Register 
of  Wills  of  the  proper  county  in  this  State  before  securing 
ancillary  letters. 

Administrator's  Liability. 

The  principal  and  ancillary  administrations  are,  as  we  have 
noted,  distinct  in  regard  to  the  assets  which  are  to  be 
administered  in  each.  Each  administrator  is  liable  for  and 
bound  to  inventory  and  administer  all  the  assets  of  the 
estate  of  which  he  has  knowledge,  except  those  which  lie  within 
the  jurisdiction  of  some  other  administration.  Consequently  if 
one  who  is  appointed  administrator  in  the  State  where  the 
deceased  resided  takes  ancillary  administration  in  another  State, 
he  is  not  liable  in  the  latter  State  to  creditors  residing  there  for 
assets  in  his  principal  administration.  Nor  is  he  liable  to 
creditors  in  other  States  in  which  he  has  not  taken  adminis- 
tration. .•  When  there  are  assets  in  several  States,  and  adminis- 
trators in  all  of  them,  the  assets  found  in  each  State  are  admin- 
istered in  that  State.  Thus,  if  a  creditor  by  simple  contract  debt 
lives  and  dies  in  one  State,  and  the  debtor  lives  in  another, 
and  administration  is  taken  out  in  both  States,  the  debt  is 
assets  where  the  debtor  resides,  and  a  payment  to  the  adminis- 
trator appointed  in  that  State  will  be  a  good  discharge  every- 
where. Should  an  administrator  pay  a  debt  in  one  State,  he 
would  be  allowed  the  credit  in  his  accounts  though  the  debt 
accrued  in  another  State. 

In  cases  where  there  is  only  one  administration,  and  that 
is  at  the  domicile  of  the  testator  or  intestate,  and  the  estate 
consists  of  property  lying  in  several  States,  it  is  not  improper 
for  the  executor  or  administrator  to  include  this  property  in  his 
inventory,  and  he  then  becomes  bound  to  account  for  it  in  the 
course  of  his  administration,  since  the  property  may  be  received 
by  him  without  suit  and  in  such  case  he  is  in  receipt  of  it  as 
part  of  the  estate.    However,  if  there  is  another  administration 


EXECUTORS  AND  ADMINISTRATORS  511 

already  covering  those  assets,  as  has  been  said,  he  should  not 
inventory  them,  and  is  not  bound  to  account  for  them. 

In  a  case  in  Pennsylvania  where  there  was  administration 
taken  in  Pennsylvania  and  New  York  by  the  same  administrator 
a  resident  of  Pennsylvania,  upon  the  estate  of  a  resident 
of  Pennsylvania,  and  there  existed  a  mortgage  on  land  in 
New  Jersey,  which  came  into  the  hands  of  the  administrator  in 
Pennsylvania,  it  was  held  that  it  was  improper  for  him  to  carry 
it  to  the  inventory  of  the  New  York  property,  but  he  should 
have  scheduled  it  as  part  of  the  Pennsylvania  estate. 

Reverting  again  to  general  executors  and  administrators, 
they  are  required  before  entering  upon  the  duties  of  their  office 
to  take  an  oath,  usually  prescribed  by  statute.  Such  an  oath 
is  to  the  effect  that  the  duties  will  be  faithfully  and  honestly 
performed  and  the  estate  distributed  according  to  law. 

The  Question  of  Bond. 

Ordinarily  only  foreign  executors  are  required  to  furnish 
bond,  but  in  the  case  of  administrators  it  is  provided  by  statute 
in  a  majority  of  States  that  before  letters  are  granted  or  any 
duties  assumed  a  bond  must  be  given  with  sufficient  sureties  to 
secure  the  proper  performance  of  such  duties.  In  Pennsylvania, 
a  non-resident  executor  may  be  compelled  to  give  bond,  but  a 
resident  executor  can  claim  appointment  without  giving  bond. 
If  after  his  appointment  an  executor  becomes  guilty  ^f  mis- 
management of  the  estate,  or  wastes  it  after  his  appointment, 
bond  may  be  required  of  him  to  protect  those  interested  in  the 
estate.  In  Pennsylvania  it  is  expressly  provided  by  statutes  that 
the  appointment  is  void  if  the  bond  is  not  g^ven  within  the  time 
required  by  law.  If  a  bond  is  given  which  is  irregular  or 
insufficient,  the  effect  upon  the  appointment  is  the  same.  Thus 
it  has  been  held  that  taking  a  bond  with  one  surety  when  two 
or  more  are  required  invalidates  the  appointment.  The  amount 
of  the  penalty  of  an  executor's  or  administrator's  bond  is 
usually  regulated  by  statute,  being  as  a  general  rule  double  the 
estimated  value  of  the  personalty.  Many  States  have  made 
provision  by  statute  that  if  the  testator  or  all  parties  interested  in 
the  estate  expressly  so  request,  the  executor  or  administrator 
may  be  exempted  from  giving  a  bond  or  sureties  on  his  bond; 
but  all  creditors  and  guardians  of  minors  should  first  be  notified 
and  given  a  hearing  and  the  court  may  subsequently  require  a 
bond  with  sureties,  if  it  thinks  such  security  necessary.     Upon 


512  EXECUTORS  AND  ADMINISTRATORS 

filing  the  bond,  and  taking  the  oath  of  office,  letters  of  admin- 
istration will  then  be  granted  either  testamentary  or  of  admin- 
istration, as  the  case  may  be.  In  Pennsylvania  what  are  known 
as  short  certificates  are  given  by  the  Register  of  Wills  to  the 
party  so  qualifying.  These  certificates  are  to  indicate  the  power 
of  the  person  named  therein  to  represent  the  estate. 

The  next  important  duty  imposed  upon  an  executor  or 
administrator  is  to  prepare  and  file  an  inventory  of  the  decedent's 
estate,  the  main  features  of  which  are  a  list  of  the  real  and 
personal  estate  and  appraisal  or  estimate  of  the  value  thereof 
made  by  disinterested  appraisers. 

Under  the  law  of  Pennsylvania  it  is  provided  that  executors 
and  administrators  shall,  within  thirty  days  from  the  time 
administration  is  granted,  make  a  true  and  perfect  inven- 
tory of  all  goods,  chattels  and  credits  of  the  deceased,  as  far 
as  they  may  know  or  can  ascertain  them,  and  to  exliibit  the  same 
in  the  ofiice  of  the  Register  of  Wills.  The  time  after  appoint- 
ment within  which  an  inventory  and  appraisement  should  be  made 
and  filed  is  regulated  by  statutes  which  vary  in  minor  details  in 
different  jurisdictions. 

Failure  to  file  an  inventory  within  the  time  specified  is  a 
technical  breach  of  the  administration  bond,  but  may  be  gener- 
ally cured  by  filing  such  inventory  when  ordered  by  the  Court. 
But  if,  on  being  cited  to  file  an  inventory,  any  delay  or  back- 
wardness occurs,  the  courts  view  such  actions  with  suspicion. 
If  no  property  belonging  to  the  estate  of  the  deceased  comes  into 
the  hands  or  knowledge  of  the  executor  or  administrator,  the 
fact  that  he  has  disposed  of  it  all  does  not  release  him  from  the 
duty  of  filing  an  inventory. 

The  Pennsylvania  act  of  February  24,  1834,  provides  that 
whenever  personal  property  or  assets  of  any  kind  not  contained 
in  the  inventory  originally  made  shall  afterwards  come  to  the 
possession  or  knowledge  of  the  executor  or  administrator,  he 
shall  take  an  inventory  thereof  and  return  the  same  into  the 
office  of  the  Register  of  Wills  within  four  months  from  the  time 
he  discovered  such  assets.  All  bonds,  notes  and  other  evidences 
of  debt,  also  all  other  claims  and  demands  for  money,  or  any 
other  personal  property  owned  or  held  by  the  decedent  at  the  time 
of  his  decease,  shall  as  far  as  the  same  may  be  known  to  his 
executors  or  administrators  be  included  in  the  inventory  made. 

Where  an  executor  or  administrator  fails  to  file  an  inventory 
and  appraisement  as  required  by  law,  upon  presentation  of  a  peti- 
tion setting  forth  the  facts  the  Register  of  Wills  of  the  proper 


EXECUTORS  AND  ADMINISTRATORS  513 

county  will  issue  a  citation  to  such  executor  or  administrator,  to 
show  cause  why  he  should  not  do  so. 

A  testamentary  provision  that  no  inventory  and  appraise- 
ment need  be  filed  is  usually  disregarded  by  the  courts  in  a 
majority  of  jurisdictions,  although  an  executor  will  not  be 
requireil  to  file  an  inventory  except  as  to  the  personalty  where 
the  will  leaves  it  to  his  discretion  and  makes  his  appraisements 
final.  Even  the  fact  that  all  personal  property  of  the  decedent 
or  its  proceeds  have  been  disposed  of  in  the  payment  of  debts 
does  not  render  an  inventory  unnecessary,  nor  is  it  sufficient  to 
excuse  the  filing  of  an  inventory  that  the  representative  professes 
to  have  a  large  surplus  over  all  debts  and  offers  to  deposit  security 
sufficient  to  pay  any  debt  which  may  be  established.  But  an 
inventory  may  be  dispensed  with  where  all  the  parties  in  interest 
waive  it  and  is  unnecessary  where  no  assets  or  estate  have  come 
within  the  representative's  possession  or  charge.  An  inventory 
and  account  may  also  be  dispensed  with  if  not  applied  for  until 
after  so  long  a  period  that  the  lapse  of  time,  in  conjunction  with 
other  circumstances,  aflfords  a  reasonable  presumption  that  there 
were  no  assets  or  that  the  estate  has  been  fully  administered,  nor 
is  the  Court  required  to  order  an  inventory  and  account  where  it 
appears  that  the  estate  was  duly  settled  and  distributed  among 
the  persons  entitled  without  any  proceedings  in  court. 

Upon  receiving  their  appointment,  executors  and  adminis- 
trators are  required  by  the  statutes  of  most  States  to  advertise 
this  fact,  requesting  all  persons  indebted  to  the  estate  to  make 
payment  and  those  having  claims  against  the  estate  to  present 
same.  In  Pennsylvania  such  advertisement  is  required  to  be  pub- 
lished once  a  week  for  six  consecutive  weeks  in  one  newspaper 
and  the  legal  journal  of  the  county.  The  importance  of  this 
notice  relates  mainly  to  the  claims  of  creditors  against  the  estate. 
Having  published  this  notice,  the  executor  or  administrator  is 
relieved  from  personal  liability  if  he  distributes  the  assets  among 
those  who  have  duly  presented  their  claims,  but  notice  so  to  do 
must  be  given  to  all.  Furthermore,  if  an  executor  or  adminis- 
trator who  has  given  public  notice  of  his  appointment  does  not 
within  a  limited  time  from  the  notice  of  his  appointment  receive 
from  creditors  demands  against  the  estate  which  authorize  htm  to 
declare  the  estate  insolvent,  he  may  without  personal  liability  pay 
out  the  estate  to  the  creditors.  After  the  expiration  of  that  time, 
if  the  payment  is  made  before  he  has  actual  notice  of  any  other 
claim,  and  if  he  does  not  wholly  pay  the  estate  but  has  not  enough 
left  to  answer  such  other  claims,  he  may  satisfy  that  so  far  as 

88 


514  EXECUTORS  AND  ADMINISTRATORS 

he  can,  and  shall  be  discharged  from  further  liability.  However, 
if  two  or  more  of  such  claims  are  presented,  and  he  has  not 
enough  assets  to  satisfy  them,  he  must  declare  the  estate  insol- 
vent. It  is  obvious  from  what  has  just  been  stated  that  this 
notice  is  intended  for  the  protection  of  the  executor  or  adminis- 
trator from  personal  liability  in  distributing  the  estate. 

At  this  point  and  before  proceeding  further  with  the  rights 
and  duties  of  the  personal  representatives  of  a  decedent,  it  will 
be  well  to  comment  briefly  upon  the  law  governing  joint  execu- 
tors and  administrators. 

Joint  Executors  and  Administrators. 

The  interest  of  two  or  more  joint  executors  or  adminis- 
trators in  the  estate  over  which  they  are  appointed  is  joint  and 
entire,  and  the  executors  and  administrators  are  considered  as 
one  individual.  Each  of  the  executors  or  administrators  is  enti- 
tled to  the  possession  of  all  the  personal  property,  and  if  one  has 
actual  possession  of  any  of  the  personal  estate,  he  is  entitled  to 
retain  it,  as  against  his  co-executor  or  co-administrator. 

This  interest  between  joint  personal  representatives  is  of 
such  a  nature  that  no  partition  can  be  made  among  them,  for 
each  owns  the  whole,  thereby  differing  from  ordinary  joint 
tenants,  who  own  only  a  partial  interest,  although  possessed 
jointly.  And  since  each  of  the  joint  executors  and  administrators 
owns  the  whole  interest  in  the  personal  property,  it  follows  that 
if  either  grants  his  share  in  the  estate  to  a  third  person,  he  grants 
the  whole  estate.  Likewise  if  one  releases  his  interest  to  the 
other,  nothing  passes  because  both  owned  the  whole  before. 
While,  however,  the  interest  is  different  in  the  above  respect  from 
the  ordinary  interest  of  joint  tenants,  yet  it  is  in  other  respect 
like  that  interest.  The  rule  as  to  survivorship  among  joint  tenants 
applies  to  the  interests  of  joint  executors  and  administrators,  and 
if  either  dies,  his  interest  passes  to  the  survivor  or  survivors. 

Since  the  executors  and  administrators  are  thus  considered 
as  one  individual,  if  one  of  them  takes  possession  of  the  estate, 
or  any  portion  thereof,  that  possession  enures  to  the  benefit  of 
all.  All  contracts  which  were  made  with  the  deceased  must  be 
sued  or  defended  by  all  the  executors  or  administrators,  since  all 
of  them  collectively  represent  the  deceased  and  not  any  of  them 
individually.  As  the  executors  or  administrators  are  regarded  as 
one  person,  any  one  may  act  alone  in  regard  to  the  personal 
estate.  The  administration  of  the  estate  may,  therefore,  be 
wholly  carried  on  by  one,  and  he  may  perform  all  the  acts  neces- 
sary to  such  administration.    Thus,  one  of  several  co-executors 


I 


EXECUTORS  AND  ADMINISTRATORS  515 

or  co-administrators  may  assign  or  sell -ft  promissory  note  paya- 
ble to  the  testator.  So  one  may  release  a  debt  due  to  the  estate 
or  accept  pa}inent  of  a  promissory  note  and  give  a  valid  receipt 
and  discharge  therefor.  One  of  several  co-executors  or  co- 
administrators may  settle  an  account  with  one  who  has  had  deal- 
ings with  the  estate.  On  the  same  principle  it  is  held  that  one  of 
several  executors  or  administrators  may  assign  or  release  a  mort- 
gage. But  as  an  executor  or  administrator  cannot  put  any  new 
obligation  on  the  estate,  but  can  only  bind  himself  personally,  he 
cannot  bind  his  co-executors  or  co-administrators  by  any  contract 
he  may  make,  without  ratification  on  their  part.  For  example, 
if  he  borrows  money  for  the  estate  he  alone  is  responsible  and 
neither  the  estate  nor  his  co-executors  or  co-administrators  are 
liable. 

The  liability  of  joint  executors  and  administrators  is  limited 
to  such  portion  of  the  estate  as  has  come  into  their  possession, 
or  for  acts  of  negligence  or  fraud  of  the  co-executor  or  co-admin- 
istrator which  he  knew  of  and  assented  to.  This  liability  is 
extended  in  case  all  sign  a  joint  bond,  and  the  liability  of  each 
is  then  for  the  administration  of  the  whole  estate. 

An  executor  or  administrator  cannot  delegate  his  authority 
and  thus  avoid  any  of  the  liabilities  or  escape  any  of  the  duties 
imposed  on  him  by  law.  He  may,  when  necessary,  employ  and 
pay  agents  of  his  own,  such  as  professional  counsel,  collectors, 
bookkeepers,  etc.,  who  respond  to  him  alone  for  their  acts,  and 
for  whose  acts  he  as  principal  must  answer. 

It  is  the  duty  of  the  personal  representative  to  include  in  his 
inventory  all  property  to  or  claimed  by  the  decedent  or  his  estate 
which  has  come  to  the  representative's  knowledge,  but  property 
held  in  trust  by  the  decedent  need  not  be  inventoried.  There  has 
been  considerable  discussion  whether  the  inventor)'  should  include 
property  outside  of  the  State  or  country  where  the  executor  or 
administrator  is  appointed.  The  general  rule  is  to  the  eflfect  that 
the  inventory  should  properly  include  assets  in  another  State, 
unless  they  are  in  a  State  where  administration  has  already  been 
granted,  the  plan  being  to  have  all  the  assets  of  the  estate 
covered  by  some  regular  administration. 

Appraisement. 

In  Pennsylvania  it  is  provided  by  the  act  of  March  15,  1832, 
that  every  executor  or  administrator  shall  cause  a  just  appraise- 
ment to  be  made  of  the  goods,  chattels  and  credits  of  the  decedent 


5i6  EXECUTORS  AND  ADMINISTRATORS 

by  two  appraisers.  The  result  of  the  appraisement  is  only  an 
approximation  to  the  real  value  and  does  not  bind  anybody. 
In  valuing  the  property  the  appraisers  should  take  the  value  as 
of  the  time  of  the  appraisement.  For  instance,  bonds  and  nego- 
tiable securities  should  be  appraised  at  their  market  value,  not  at 
their  face  or  nominal  value.  The  appraisement  is  noted  upon  the 
inventory  blank  which  accompanies  the  order,  and  the  schedules 
filled  up,  and  the  document  when  completed  is  delivered  to  the 
executor  or  administrator,  by  whom  it  must  be  returned  to  the 
Orphans'  Court  for  record.  In  Pennsylvania,  the  act  of  April 
17,  1869,  section  i,  provides  that  where  a  testator  directs  any 
part  of  his  estate  to  be  appraised,  appraisers  will  be  appointed 
by  the  Orphans'  Court  upon  petition  of  any  person  interested; 
this  applies  only  when  the  testator  has  not  indicated  by  whom  the 
appraisement  shall  be  made,  and  an  appraisement  made  by  com- 
petent persons,  chosen  by  the  executors  under  a  clause  in  the  will 
providing  that  an  appraisement  of  the  residuary  estate  should  be 
made  by  the  executors  in  such  manner  as  might  seem  best  to 
them,  will  not  be  set  aside  in  the  absence  of  any  allegation  of 
fraud  or  lack  of  good  faith. 

The  bulk  of  the  estate  of  a  defcedent  which  is  to  be  adminis- 
tered generally  consists  of  the  ordinary  personal  property  of 
every-day  life.  Household  furniture,  clothing,  money,  and  some- 
times bonds,  stocks,  notes,  carriages  and  other  forms  of  personal 
property  will  be  found  to  form  a  large  part  of  it.  In  farming 
communities,  the  farm  tools  and  implements ;  in  business  centers, 
the  stock  and  merchandise,  will  enter  into  the  estate.  Few  ques- 
tions arise  as  to  the  fact  of  these  kinds  of  property  being 
assets  of  the  estate.  There  are,  however,  two  points  to  be  noted : 
First,  that  some  chattels  may  be  so  affixed  to  realty  as  to  become 
part  of  it,  and  then  do  not  form  part  of  the  personal  estate ; 
second,  that  only  property  which  was  owned  by  the  deceased  at 
the  time  of  his  death  forms  his  estate. 

When  personal  property  is  affixed  to  realty  it  is  called  a  fix- 
ture. Technically  speaking,  fixtures  are  those  personal  chattels 
which  have  been  annexed  to  land,  and  which  may  afterwards  be 
severed  and  removed  by  the  party  who  has  annexed  them,  against 
the  will  of  the  owner  of  the  land.  But  the  term  "fixtures"  is 
commonly  used  to  include  those  chattels  which  become  part  of  the 
realty,  and  cannot  be  removed,  as  well  as  those  which  may  be 
removed.  The  general  rule  is  that  whatever  is  affixed  to  the 
realty  is  thereby  made  part  of  it,  and  partakes  of  its  incidents  and 
properties.     The  effect  of  this  rule  on  chattels  affixed  to  the 


EXECUTORS  AND  ADMINISTRATORS  517 

realty,  as  regards  the  right  of  the  executor  or  administrator  and 
heir  or  devisee,  and  the  remainderman  or  reversioner,  we  will 
now  proceed  to  examine. 

A  chattel,  in  order  to  become  a  part  of  the  realty,  must  be 
in  some  way  actually  affixed  to  the  land  or  house  or  other  part 
of  the  realty.  It  is  not  sufficient  that  it  be  merely  laid  upon  the 
ground  or  brought  into  contact  with  it.  Thus  fence  rails  laid  in 
piles  upon  the  ground  are  personal  property,  while  a  fence  at- 
tached to  the  land  by  posts,  stakes  or  otherwise,  is  part  of  the 
realty.  For  the  same  reason  it  has  been  held  that  where  a  tenant 
built  a  barn,  and  put  it  upon  blocks  of  wood  resting  on  the 
ground  and  not  inserted  in  the  ground  or  in  any  way  fastened 
to  it,  the  barn  remained  personal  property  and  the  tenant  might 
remove  it.  The  rule  may  be  stated  as  follows:  If  the  chattel  is 
so  affixed  to  the  realty  that  it  cannot  be  removed  therefrom  with- 
out serious  injury  thereto  it  becomes  and  is  to  be  regarded  as 
part  of  the  realty. 

By  far  the  greater  number  of  cases  which  arise  on  this  point 
are  those  in  which  the  chattel  in  question  is  affixed  in  some  man- 
ner to  the  realty  or  to  some  portion  thereof,  but  not  in  such  a 
manner  that  great  damage  would  be  done  to  the  realty  if  the 
chattel  were  removed.  In  such  cases  the  intention  of  the  party 
affixing  it,  as  shown  by  the  various  circumstances  of  the  case, 
viz.,  the  manner  of  affixing  it,  the  purpose  for  which  the  chattel 
is  to  be  used,  the  purpose  for  which  the  building  is  used,  and  the 
like,  governs  the  decision  in  each  case.  If  the  chattel  is  affixed 
to  the  realty  merely  for  the  better  use  of  the  chattel,  as,  for  in- 
stance, when  a  carpet  is  attached  to  a  floor  by  tacks,  it  remains 
personalty.  But  chattels  which  are  affixed  to  the  realty  for  the 
better  and  more  convenient  use  of  the  building  for  the  purpose  to 
which  it  is  specially  adapted  are  considered  part  of  the  realty. 
Thus,  when  a  building  is  built  for  and  specially  adapted  to  use 
as  a  mill,  the  water  wheel,  millstones  and  running  gear  are  part 
of  the  realty. 

In  considering  the  relation  of  the  person  affixing  the  chattel 
to  the  realty,  it  is  important  to  notice  the  different  rules  which 
the  courts  have  laid  down  as  to  the  rights  of  the  executor  or 
administrator  of  the  owner  in  fee,  the  owner  for  life  and  the 
tenant  for  years.  The  Jaw  looks  with  strictness  upon  the  right 
of  the  executor  or  administrator  of  the  owner,  of  land  in  fee,  as 
against  the  heir  of  such  owner,  for  the  principle  of  the  law  is 
that  the  inheritance  should  be  allowed  to  descend  to  the  heir  un- 
impaired, whereas,  as  between  the  executors  or  administrators 


5i8  EXECUTORS  AND  ADMINISTRATORS 

of  a  tenant  for  years  and  the  owner  of  the  land  in  fee,  the  law 
looks  with  somewhat  more  favor  on  the  rights  of  the  executors 
or  administrators.  The  reason  for  the  difference  is  that  the 
tenant  for  years,  knowing  his  interest  in  the  estate  to  be  limited, 
is  not  presumed  to  have  intended  to  enrich  the  estate  permanently 
and  therefore  the  law  would  require  such  an  intention  to  be  shown 
more  clearly  than  in  case  of  the  heir.  An  exception  to  the  strict- 
ness with  which  the  law  regards  the  executor  or  administrator, 
as  against  the  heir,  exists  in  case  of  fixtures  put  up  in  a  dwelling 
house  for  ornament  or  convenience.  These  may  be  removed  by 
the  executor  or  administrator  if  it  can  be  done  without  substantial 
injury  to  the  realty. 

As  between  the  executor  or  administrator  and  the  devisee, 
the  rule  is  even  more  strict  against  the  executor  than  as  between 
him  and  the  heir,  since  it  is  presumed  that  the  testator  intended 
to  grant  the  full  enjoyment  of  the  land  devised,  and  therefore,  if 
there  is  any  question,  the  presumption  is  in  favor  of  the  devisee. 
As  between  the  executor  or  administrator  of  the  tenant  for  life 
and  a  remainderman  or  reversioner,  the  rule  is  more  relaxed  in 
favor  of  the  executor  or  administrator  and  particularly  in  regard 
to  trade  fixtures,  which  probably  would  go  to  the  executor  or 
administrator  unless  so  affixed  to  the  freehold  that  substantial 
injury  would  be  done  by  removing  them. 

Mention  has  already  been  made  that  only  those  chattels  are 
assets  of  the  estate  of  a  decedent  in  which  he  had  ownership  at 
the  time  of  his  death.  The  money  due  on  an  insurance  policy  on 
the  life  of  the  deceased  is  an  asset  of  the  estate,  if  this  policy  was 
payable  to  the  deceased  or  his  representatives,  but  if  payable  to 
others  it  is  not.  A  policy  payable  to  the  deceased,  "his  executors, 
administrators  or  assigns,"  for  the  benefit  of  others,  is  not,  strictly 
speaking,  assets,  but  the  executor  holds  same  in  trust  for  the 
beneficiaries.  A  policy  on  another's  life  is  assets,  if  payable  to 
the  deceased. 

Dividends  on  stock  generally  belong  to  the  person  who  owns 
the  stock  when  the  dividends  are  declared,  and  not  to  the  executor 
or  administrator  of  a  prior  holder  of  the  stock  while  the  dividend 
was  being  earned.  However,  if  one  has  a  limited  interest,  as 
where  one  has  a  life  interest  in  stock  of  a  manufacturing  com- 
pany, a  dividend  wholly  earned  before  his  death,  but  not  declared 
till  after  his  death,  will  go  to  his  executor  or  administrator,  as 
being  part  of  his  life  interest,  and  not  to  the  subsequent  owner 
of  the  stock.  There  is  some  diversity  of  opinion  on  this  point. 
Interest  on  money  goes  to  the  executor  or  administrator  up  to 


EXECUTORS  AND  ADMINISTRATORS  519 

the  time  when  the  decedent  died,  even  though  it  is  payable  half- 
yearly  or  at  other  definite  times.  Interests  in  patents  and  copy- 
rights vest  in  the  executor  or  administrator,  and  the  executor  or 
administrator  may  make  application  for  a  patent  covering  an 
invention  of  the  decedent.  The  same  principle  applies  to  a  trade 
secret  or  process  which  one  has  discovered  and  kept  secret, 
whether  patentable  or  not,  if  the  person  about  to  use  it  will  by  so 
doing  violate  any  contract  or  be  guilty  of  a  breach  of  good  faith. 
The  contract  right  in  such  case  survives  to  the  executor  or  admin- 
istrator, and  he  may  bring  a  bill  for  an  injunction.  Likewise  a 
pension  from  the  Government  payable  to  the  widow,  who  dies 
before  it  is  paid,  should  be  paid  to  her  executor  or  administrator, 
and  not  to  the  children. 

As  incidental  to  the  duty  of  the  personal  representatives  to 
collect  the  assets  of  a  decedent's  estate,  the  executor  or  adminis- 
trator has  the  right  to  compromise  any  demand  of  the  decedent, 
provided  he  acts  honestly  and  within  the  range  of  a  reasonable 
discretion  for  the  true  interests  of  the  estate.  The  duty  of  the 
personal  representative  to  collect  debts  due  the  estate  of  his 
decedent  is  not  changed  by  the  fact  that  he  is  a  debtor.  He  must, 
if  solvent  or  able  to  pay,  pay  the  debt  and  account  for  the  amount 
thereof  as  assets.  He  is  not  debarred,  however,  from  showing 
that  the  claim  against  him  is  unfounded  or  unjust  or  has  been 
paid,  and  he  may  also  return  the  debt  as  uncollectible  when  the 
facts  warrant  this  to  be  done. 

Assets  of  the  Estate. 

It  is  a  primary  duty  of  the  executor  or  administrator  to  col- 
lect the  assets  of  the  estate  of  the  deceased  for  the  benefit  both 
of  the  creditors  of  the  estate  and  the  next  of  kin  or  legatees.  In 
general  he  has  the  right  to  and  should  take  into  his  possession 
or  custody  all  personal  chattels  even  though  specifically  be- 
queathed, and  proceed  to  collect  all  debts  or  claims  due  the  estate. 
Whenever  assets  come  into  the  possession  or  knowledge  of  the 
personal  representatives,  they  become  liable  to  account  for  the 
same  satisfactorily  or  else  stand  chargeable  with  their  full  value. 
So  far  as  land  and  other  real  property  of  the  deceased  is  con- 
cerned, the  personal  representatives  have  no  interest  as  a  general 
rule,  except  so  far  as  it  may  be  given  by  statute,  or  in  case  of  an 
executor,  by  the  will  of  the  deceased.  The  executor  or  adminis- 
trator may  with  the  consent  of  the  heirs  occupy  the  land,  but  then 
becomes  liable  to  them  for  the  rents  and  profits,  but  not  as  assets 
which  creditors  can  reach. 


520  EXECUTORS  AND  ADMINISTRATORS 

Another  interest  in  the  real  estate  of  a  decedent  which  is 
conferred  by  statute  upon  the  executor  or  administrator  is  the 
power  to  sell  the  same  for  the  payment  of  debts.  This  power 
gives  the  executor  or  administrator  no  estate  in  the  land,  and  is 
a  mere  power  only  to  be  exercised  by  leave  of  the  Court.  An 
executor  or  administrator  sometimes  takes  land  on  execution  for 
debts  due  the  estate.  In  such  a  case  the  land  belongs  to  the 
personal  estate  and  is  to  be  accounted  for  as  such.  The  executor 
or  administrator  holds  the  legal  title  in  such  lands  in  trust  for 
creditors,  distributees  and  legatees,  and  may,  therefore,  maintain 
actions  for  trespass  on  the  land,  or  may  recover  possession  of  it 
until  distribution  and  partition  are  made. 

Profits  realized  from  lands  which  have  been  bought  with 
partnership  funds,  and  are  held  for  partnership  purposes,  are 
considered  to  be  personal  estate,  until  the  dissolution  of  the  part- 
nership, and  go  as  such  to  the  executor  or  administrator ;  but  the 
land  upon  such  dissolution  resumes  its  character  of  real  estate, 
and  descends  to  the  heirs.  Rents  which  accrue  after  the  death 
of  the  lessor  (decedent)  go  to  the  heir.  Rent  which  accrues  be- 
fore the  death  of  decedent  goes  to  the  administrator  or  executor 
and  the  right  to  sue  for  it  is  in  the  personal  representatives. 


Safe-Keeping  of  Estate  Funds. 

The  executor  or  administrator,  for  the  purpose  of  safely 
keeping  the  funds  of  the  estate  during  administration,  should 
deposit  the  same  in  a  bank,  but  the  deposit  should  properly  be 
made  with  a  designation  of  his  trust  or  fiduciary  capacity.  If 
the  funds  are  so  deposited,  and  due  care  is  used  in  selecting  the 
depository,  the  executor  or  administrator  is  not  responsible  for  a 
loss  resulting  from  the  subsequent  failure  of  the  bank,  the  test 
being  whether  he  has  exercised  such  prudence  as  men  of  average 
intelligence  ordinarily  exercise  in  their  own  affairs.  For  ex- 
ample, in  a  recent  case  a  trust  company  was  appointed  adminis- 
trator, and  as  such  it  became  liable  to  deposit  the  funds  of  an 
estate  in  a  bank.  It  was  held  guilty  of  negligence  in  depositing 
them  in  an  insolvent  bank,  and  therefore  liable  for  loss  resulting 
therefrom,  where  its  president  had  actual  knowledge  at  the  time 
of  the  insolvent  condition  of  the  bank  of  deposit,  and  its  officers 
whose  duty  it  was  to  look  after  deposits  of  trust  accounts  had 
heard  rumors  sufficient  to  put  them  on  inquiry,  which  if  made 
would  have  revealed  to  them  the  true  condition  of  the  bank.  And 
in  view  of  these  facts,  the  fact  that  the  clerk  of  the  trust  company 


EXECUTORS  AND  ADMINISTRATORS  521 

having  immediate  charge  of  the  deposits  acted  in  good  faith, 
believing  the  bank  to  be  solvent,  did  not  exonerate  the  company, 
nor  was  the  trust  company  authorized  to  rely  on  the  general 
reputation  of  the  bank,  where  its  president  was  also  president  of 
the  bank  and  thus  had  the  means  at  hand,  coupled  with  the  duty, 
to  acquaint  himself  with  its  condition.  This  rule,  of  course, 
applies  with  equal  force  to  individuals. 

The  general  rule  is  that  neither  an  executor  nor  an  adminis- 
trator is  justified  in  placing  or  leaving  assets  in  trade,  for  this  is 
regarded  as  a  hazardous  use  to  permit  of  trust  money.  It  is  a 
great  breach  of  trust  for  an  executor  or  administrator  to  engage 
in  business  with  the  funds  of  the  estate,  and  consequently  the 
law  charges  him  with  all  the  losses  thereby  incurred,  without,  on 
the  other  hand,  allowing  him  to  receive  the  benefit  of  any  profits 
that  he  may  make,  the  rule  being  that  the  persons  beneficially 
interested  in  the  estate  may  either  hold  the  personal  representative 
liable  for  the  amount  so  used,  with  interest,  or,  at  their  election, 
take  all-  the  profits  which  the  representative  has  made  by  such 
unauthorized  use  of  the  funds  of  the  estate. 

As  an  apparent  exception  to  the  above-stated  rule,  the  per- 
sonal representative  may  continue  the  business  of  the  decedent 
so  far  as  is  necessary  for  the  purpose  of  winding  up  the  same  and 
converting  the  assets  into  money,  or  carrying  out  existing  con- 
tracts of  decedent.  A  testator  frequently  authorizes  his  executor 
to  carry  on  his  business,  usually  providing  the  conditions  under 
which  this  shall  be  done.  Now,  it  has  been  decided  by  the  courts 
that  where  the  personal  representative  is  authorized  to  carry  on 
the  business  of  the  decedent  the  debts  incurred  in  so  doing  are 
chargeable  against  the  estate  and  not  against  the  personal 
representative  individually. 

Carrying  on  a  Business  of  Decedent. 

In  cases  where  an  executor  is  authorized  to  carry  on  the 
decedent's  business  after  his  death,  only  such  assets  of  the  estate 
as  are  invested  in  the  business  at  the  time  of  the  decedent's  death 
can  be  considered  as  trade  assets,  and,  in  the  absence  of  some 
clear  authority  in  the  will,  the  other  property  of  the  estate  cannot 
be  subjected  to  the  risks  of  trade  or  be  made  liable  for  debts 
contracted  by  the  representative  in  carrying  on  the  business.  A 
claim  that  an  executor,  carrying  on  the  business  of  his  testator 
under  the  will,  made  fraudulent  representations  as  to  the  value 
of  the  estate  in  order  to  obtain  credit,  gives  no  right  of  action 


522  EXECUTORS  AND  ADMINISTRATORS 

against  the  estate,  but  only  against  the  executor  personally.  The 
Supreme  Court  of  Pennsylvania  has  ruled  that  where  an  executor 
is  given  "full  power"  to  conduct  the  business  in  which  testator 
was  engaged,  he  may  carry  on  all  testator's  business  interests  and 
in  doing  so  is  not  Hmited  to  capital  invested  in  the  business. 

Unless  the  creditors  existing  at  the  death  of  the  decedent  in 
some  way  consent  to  the  carrying  on  of  the  business  by  the 
executor,  they  have  the  right  to  insist  that  the  estate,  as  it  existed 
at  decedent's  death,  shall  be  used  for  the  payment  of  their  debts 
and  the  expenses  of  administration  to  the  exclusion  of  debts  sub- 
sequently created  by  the  executors.  But  if  the  business  was 
carried  on  by  the  executor  with  the  consent  of  the  original  cred- 
itors, the  creditors  of  the  business  must  either  share  pro  rata  with 
the  other  creditors  in  the  whole  estate  (which  is  doubtless  the 
correct  rule)  or  be  first  paid  out  of  the  portion  of  the  estate  used 
in  the  business. 

The  personal  representative  of  a  decedent  has,  as  a  rule,  no 
more  right  to  continue  in  a  business  in  which  the  decedent  was 
a  partner  than  he  has  to  continue  a  business  in  which  the  decedent 
was  sole  proprietor.  The  executor  of  a  deceased  co-partner  may 
continue  the  business  where  the  will  directs  him  to  do  so,  and 
the  liability  of  a  deceased  co-partner  as  well  as  his  interest  in  the 
profits  of  the  concern  may  by  the  co-partnership  contract  be  con- 
tinued beyond  his  death,  although  in  the  absence  of  such  a 
stipulation  the  death  of  one  of  the  partners  would  dissolve  the 
firm,  even  though  the  co-partnership  was  expressed  to  be  for  a 
term  of  years.  With  such  a  contract,  the  eflfect  must  naturally 
be  to  bind  the  estate  of  the  deceased  partner  in  the  hands  of  his 
executor  or  administrator  without  compelling  such  representative 
to  become  a  partner  personally.  This  is  one  of  the  ob- 
jections to  a  co-partnership  arrangement,  which  is  overcome  by 
incorporating. 

A  settlement  of  partnership  affairs  made  with  the  surviving 
partners  by  the  personal  representative  of  a  deceased  partner  is 
binding  on  the  latter's  estate,  its  creditors  and  beneficiaries,  ex- 
cept in  cases  of  fraud  or  mistake,  and  for  only  the  share  thus 
received  is  the  personal  representative  liable  to  account. 

In  making  investments  of  the  funds  of  the  estates,  the  per- 
sonal representative  acts  as  trustee  rather  than  as  executor  or 
administrator,  and  his  duties  and  liabilities  in  respect  to  such 
investments  are  governed  by  the  same  rules  as  apply  to  other 
trustees.  If  the  will  contains  directions  as  to  the  investments  to 
be  made,  these  must  be  followed.  Ordinarily  investments  are  re- 
stricted to  real  estate,  Government  and  municipal  bonds,  and  if 


EXECUTORS  AND  ADMINISTRATORS  523 

the  executor  or  administrator  has  any  doubt  as  to  the  wisdom  of 
any  investment,  it  is  tlie  part  of  wisdom  for  him  to  obtain  the 
sanction  of  the  Court  before  making  the  investment,  in  order  to 
avoid  any  possible  effort  being  made  to  hold  him  personally  re- 
sponsible. The  personal  representative  of  an  estate  is  liable  for 
all  losses  sustained  by  virtue  of  unauthorized  or  improper  in- 
vestments. An  executor  or  administrator  who  fails  to  invest  or 
deposit   funds  as  required  is  chargeable  with  interest  thereon. 

It  is  a  fundamental  principle  of  the  law  on  this  subject  that 
an  executor  or  administrator  will  not  be  allowed  to  acquire  indi- 
vidual interests  inconsistent  with  the  representative  capacity  he 
sustains  for  the  benefit  of  the  estate,  nor  to  make  a  personal  profit 
out  of  his  dealings  with  the  property  of  the  estate.  Transactions 
in  which  the  representative  as  an  individual  deals  with  himself  in 
his  representative  capacity  are  always  regarded  with  suspicion 
and  will  be  set  aside  if  inequitable.  Hence,  while  his  general 
right  to  dispose  of  assets  is  conceded,  an  executor  or  adminis- 
trator should  not  purchase  or  speculate  with  property  of  the 
estate  for  his  individual  benefit,  divert  the  funds  of  the  estate  into 
business  or  investments  for  his  own  private  gain,  buy  out  for 
himself  his  decedent's  share  in  a  partnership  or  sell  his  own 
property  to  the  estate. 

The  representative's  sale  of  assets  or  other  transactions 
made  for  other  purposes  than  the  due  discharge  of  his  duty  as 
executor  or  administrator  will  not  be  sustained  against  the  in- 
terests of  the  estate,  where  the  person  with  whom  he  dealt  had 
notice  of  his  bad  faith  or  breach  of  trust,  and  in  such  case  the 
transaction  may  be  set  aside  and  restitution  enforced.  However, 
a  third  person  who  in  dealing  with  such  representative  acted  in 
good  faith,  and  has  paid  a  consideration,  will  be  protected  in 
the  transaction. 

Executors  and  administrators  are  not  insurers,  nor  will  they 
be  chargeable  with  the  loss  or  depreciation  of  assets  where  they 
have  acted  in  good  faith  in  the  care  and  management  of  the 
estate.  The  estate  of  a  decedent  is  not  liable  for  the  fraud,  false 
representations  or  misconduct  of  an  exeaitor  or  administrator, 
but  the  personal  representative  who  practices  such  fraud  will  be 
answerable  personally  therefor  to  the  injured  person. 

Sales  of  Personal  Property. 

The  personal  estate  of  a  decedent  vests  in  the  executor  or 
administrator,  as  we  have  alrcadv  pointed  out.  The  executor 
or  administrator  is  charged  with  the  duty  of  paying  the  debts  of 


524  EXECUTORS  AND  ADMINISTRATORS 

the  intestate,  and  to  accomplish  this  object  he  has  the  power 
to  sell  the  personal  estate  at  any  time,  provided  the  sale  is  bona 
fide  and  without  fraud.  In  some  States  an  order  of  Court  is 
required  to  authorize  a  sale.  The  power  to  sell  personal  prop- 
erty includes  the  power  to  sell  chattel  interests  in  land,  such  as 
leases  for  terms  of  years,  mortgages,  etc.  As  auxiliary  to  the 
power  of  sale  of  personal  property  owned  by  the  executor  or 
administrator,  his  power  is  extended  to  endorsing  bills  of  ex- 
change or  promissory  notes  of  the  deceased,  with  the  same  effect 
as  if  the  endorsement  had  been  made  by  the  deceased  himself. 

A  mortgage  before  foreclosure,  being  considered  personal 
property  of  the  mortgagee,  may  be  sold  by  his  executor  or  ad- 
ministrator and  assigned  by  him,  without  an  order  of  Court 
except  as  this  may  be  required  by  statute.  After  foreclosure  the 
mortgage  interest  becomes  real  property  and  cannot  be  sold  with- 
out the  sanction  of  the  Court.  The  power  of  an  executor  or 
administrator  to  dispose  of  the  personal  property  of  the  decedent 
is  held  by  high  authority  to  include  the  power  to  mortgage  the 
assets  in  order  to  raise  money  for  the  purposes  of  administration. 
In  Pennsylvania  a  chattel  mortgage  is  not  recognized  as  possess- 
ing any  validity.  The  power  of  the  executor  or  administrator 
to  sell  personal  property  includes  the  power  to  pledge  the  assets 
to  raise  money,  and  the  pledgee  may  sell  if  the  pledged  property 
is  not  redeemed. 


Interests  in  Real  Estate. 

The  personal  representatives  of  a  decedent  cannot,  by  virtue 
of  their  office,  occupy  and  lease  land  or  receive  the  rents  and 
profits  thereof  accruing  after  the  death  of  decedent.  All  rights 
and  profits  connected  with  the  realty  belong  to  the  heirs  or  de- 
visees. The  powers  of  an  executor  or  administrator  relating  to 
land  are  limited  to  the  application  for  and  proper  execution  of 
an  order  of  sale  when  this  is  necessary  to  pay  debts.  When  an 
executor  or  administrator  ascertains  that  the  personalty  is  insuffi- 
cient to  pay  the  debts  it  is  his  duty  to  present  a  petition  for  leave 
to  sell  real  estate,  or  if  such  power  is  conferred  by  the  will,  he 
should  exercise  it  for  the  benefit  of  creditors.  The  circumstances 
under  which  leave  will  be  granted  to  sell  real  estate  are  so  num- 
erous and  involve  such  technicalities  that  it  would  not  be  in 
conformity  with  the  spirit  of  these  articles  to  discuss  same  in 
detail.  Whenever  it  becomes  necessary  for  an  executor  or  ad- 
ministrator to  obtain  leave  of  Court  to  sell  real  estate,  it  is 


EXECUTORS  AND  ADMINISTRATORS  525 

imperative  that  an  attorney  be  employed,  these  articles  being 
limited  to  an  analysis  of  only  such  general  principles  of  law  as 
would  be  of  interest  and  value  to  the  average  business  layman, 
that  he  may  be  guided  without  the  services  of  an  attorney. 

The  personal  representative  of  a  decedent  has  at  common 
law  no  title  or  right  to  the  rents  and  profits  of  the  real  estate  of 
his  decedent  accruing  after  the  latter's  death,  but  possession  and 
control  of  real  estate  such  as  will  carry  the  right  to  rents  and 
profits  may  bcNgiven  to  the  executor  or  administrator  by  the 
will,  and  statutes  frequently  give  the  representative  the  right,  un- 
der appropriate  circumstances,  to  receive  the  rents  and  profits, 
either  for  the  purpose  of  using  them  for  payment  of  the  debts  or 
for  other  proper  purposes  connected  with  the  administration. 
The  representative  who  has  collected  rents  may  be  protected 
where,  instead  of  paying  the  same  over  to  the  heirs  or  other  dis- 
tributees, he  has  under  prudent  and  reasonable  circumstances 
applied  the  same  beneficially  for  the  premises,  as  in  keeping  down 
mortgage  interest  and  preventing  foreclosure  at  a  sacrifice,  or 
for  keeping  the  buildings  in  proper  repair.  The  Supreme  Court 
of  Pennsylvania  has  decided  that  an  administrator  has  no  au- 
thority to  apply  rents  collected  to  taxes  and  arrears  of  ground 
rent  accruing  subsequent  to  the  death  of  the  decedent.  The 
Court  has  also  refused  to  call  a  widow  who  was  administratrix 
to  account  for  rents  and  profits  expended  in  the  support  of  infant 
children  of  the  deceased. 

As  a  general  rule  of  law,  an  executor  or  administrator  who 
has  taken  possession  or  control  of  the  real  estate  of  his  decedent 
must  account  for  the  rents  and  profits  thereof.  He  is  not  respon- 
sible for  rents  for  a  time  when  the  real  estate  was  not  in  his 
possession  or  control  unless  he  has  been  guilty  of  some  lack  of 
good  faith  which  has  resulted  in  a  loss  to  those  entitled  to  the 
rents. 

The  common  law  rule  that  the  personal  property  is  the 
primary  fund  for  payment  of  the  decedent's  personal  debts,  to 
the  exemption  of  the  realty,  has  been  extended  so  far  as  to  allow 
the  heir  or  devisee  to  call  upon  the  executor  or  administrator  to 
exonerate  the  realty  from  a  debt  constituting  a  Hen  thereon,  un- 
less the  testator  has  expressed  his  intention  to  the  contrary  in 
plain  terms.  However,  the  rule  relates  only  to  personal  debts 
of  the  decedent,  and  if  the  decedent  acquired  land  already  subject 
to  a  mortgage  the  representative  cannot  be  called  upon  to  dis- 
charge it  unless  the  decedent  made  the  debt  his  own  or  directed 
by  will  that  his  personal  estate  should  discharge  the  lien. 


526  EXECUTORS  AND  ADMINISTRATORS 

In  view  of  the  fact  that  a  lease  of  lands  is  a  chattel  interest 
going  to  the  personal  representative  as  assets,  it  is  the  duty  of 
the  personal  representative  to  perform  the  contract,  and  he  is 
liable  for  a  breach  of  it,  while  on  the  other  hand  he  may  maintain 
ejectment  with  relation  to  the  leased  lands. 

Priority  of  Debts. 

We  have  noted  the  fact  that  a  personal  representative  of  a 
decedent  must,  upon  qualifying  as  such,  make  an  inventory  and 
appraisement  of  the  assets,  advertise  his  appointment  and  apply 
the  assets  to  the  payment  of  decedent's  debts,  after  which  distri- 
bution must  be  made  in  accordance  with  the  will  or  the  intestate 
laws,  as  the  case  may  be.  It  is  most  important  to  understand  the 
order  in  which  the  debts  of  a  decedent  must  be  paid  by  the 
executor  or  administrator,  which  we  will  next  proceed  to  outline. 

The  order  of  priority  of  payment  of  debts  is  settled  by 
statute  in  a  majority  of  States,  to  which  reference  must  be  made 
by  the  executor  or  administrator  to  determine  upon  his  proper 
course  of  action. 

In  Pennsylvania  it  is  provided  by  statute  that  all  debts  owing 
by  any  person  within  this  State  at  the  time  of  his  death  shall  be 
paid  by  his  executors  or  administrators,  so  far  as  they  have 
assets,  in  the  following  order,  viz. :  ( i )  Funeral  expenses,  medi- 
cine furnished  and  medical  attendance  given  during  the  last  ill- 
ness of  the  decedent,  and  servants'  wages  not  exceeding  one 
year;  (2)  rents  not  exceeding  one  year;  and  (3)  all  other  debts, 
without  regard  to  the  quality  of  the  same,  except  debts  due  to 
the  Commonwealth,  which  shall  be  last  paid.  By  the  same  act 
(act  of  February  24,  1834)  no  executor  or  administrator  is  com- 
pelled to  pay  any  debt  of  the  decedent,  except  such  as  are  by  law 
preferred  in  the  order  of  payment  to  rents,  until  one  year  be 
fully  elapsed  from  the  granting  of  the  administration  of  the 
estate. 

Widow's  Exemption. 

A  portion  of  the  husband's  estate  is  given  by  statute  in  most 
States  for  the  immediate  support  of  the  widow  and  children  after 
the  husband's  death.  This  portion  is  called  the  widow's  allow- 
ance or  exemption,  and  generally  consists  of  a  certain  quantity 
of  provisions  and  a  certain  amount  of  property  up  to  a  limited 
value.  This  allowance  either  takes  precedence  of  all  debts  and 
charges  upon  the  estate,  or  ranks  immediately  after  the  expenses 


EXECUTORS  AND  ADMINISTRATORS  527 

of  last  illness  and  funeral.  In  Pennsylvania,  under  th6  act  of 
April  14,  185 1,  and  supplements,  it  is  provided  substantially  that 
the  widow  or  the  children  of  any  decedent  dying  within  this  State 
may  retain  either  real  or  personal  property  belonging  to  the  estate 
to  the  value  of  $300.  Upon  presentation  of  such  a  claim  by  the 
widow  or  children  of  a  decedent  it  becomes  the  duty  of  the 
executor  or  administrator  to  have  the  property  to  be  exempt  ap- 
praised. The  widow  must  present  her  claim  within  a  reasonable 
time  and  the  appraisement  must  be  made  as  soon  as  possible. 
The  Supreme  Court  of  this  State  has  held  that  a  widow  is  entitled 
to  $300  out  of  the  proceeds  of  the  sale  of  her  deceased  husband's 
real  estate  in  preference  to  a  judgment  creditor  in  whose  favor  he 
had  waived  the  benefit  of  the  exemption  law. 

It  is  evident  that  the  amount  which  should  properly  be  al- 
lowed by  the  Court  for  the  funeral  expenses  of  the  deceased 
must  vary  greatly  with  the  condition  of  his  estate,  for  expenses 
which  might  be  proper  and  suitable  if  the  estate  is  solvent  would 
clearly  be  unsuitable  if  the  estate  was  insolvent,  as  they  would 
diminish  the  fund  from  which  the  payment  of  debts  is  to  be 
made.  Necessary  items  of  expense  are  coffin,  shroud,  hearse  and 
undertaker's  fees,  and  these  would  be  allowed  even  if  the  estate 
were  insolvent.  If  the  deceased  died  away  from  home  the  ex- 
pense of  transportation  to  his  home  and  of  a  person  to  attend 
such  transportation  has  been  held  a  necessary  one.  Expenses 
of  entertaining  guests  at  a  funeral  have  been  held  not  to  be  nec- 
essary as  part  of  the  funeral  expenses  in  case  of  an  insolvent 
estate.  There  is  some  conflict  of  authority  as  to  whether  the 
expense  of  a  gravestone  is  necessary  so  as  to  give  it  priority  as 
part  of  the  funeral  expenses.  In  Pennsylvania  it  has  been 
decided  that  the  expense  of  a  gravestone  was  allowable,  even 
against  creditors. 

If  the  executor  or  administrator  orders  the  funeral  and  in- 
terment, or  if  he  ratifies  or  adopts  the  acts  of  another  he  is  per- 
sonally liable  for  these  expenses.  If  he  is  compelled  to  pay  these 
expenses  he  must  look  to  the  estate  for  his  remuneration.  He 
would  have,  in  such  case,  a  preferred  claim  upon  the  assets  of 
the  estate. 

With  reference  to  expenses  incident  to  last  illness,  whether 
the  expenses  claimed  were  incurred  during  the  last  illness  of  the 
deceased  is  a  question  of  fact  to  be  decided  by  a  jury  in  case  of 
dispute.  Any  illness  terminating  in  death  may  be  regarded  as  a 
last  illness  in  this  connection.  All  sums  paid  for  the  expenses  of 
the  last  illness  are  of  equal  degree  and  should  be  paid  ratably  in 


528  EXECUTORS  AND  ADMINISTRATORS 

case  of  a  deficiency  of  assets.  In  New  Jersey  it  has  been  held 
that  the  physician's  bill  should  be  paid  before  the  funeral 
expenses. 

A  claim  for  services  rendered  to  the  decedent  may  be  allowed 
against  his  estate,  whether  such  services  were  rendered  upon  an 
express  contract  for  a  fixed  payment,  or  without  any  such  con- 
tract, but  with  the  expectation  of  reasonable  compensation  there- 
for. Failure  to  demand  payment  during  the  decedent's  lifetime 
will  not  necessarily  defeat  a  claim  against  his  estate  for  valuable 
services  performed  at  his  request.  The  courts  regard  with 
suspicion  and  disfavor  claims  brought  against  a  decedent's  estate 
for  personal  services  rendered  by  relatives,  especially  where  the 
latter  are  members  of  his  immediate  family  or  household,  as  the 
presumption  is  that  such  persons  would  render  such  services 
gratuitously.  Consequently  claims  against  the  estate  of  a  de- 
cedent made  by  near  relatives  for  personal  services  require 
stronger  proof  to  establish  them  than  ordinary  claims  made  by 
strangers. 

Lien  of  Decedent's  Debts. 

In  Pennsylvania  it  is  provided  by  statute  that  no  debts  of  a 
decedent,  except  they  be  secured  by  mortgage  or  judgment  en- 
tered or  revived  within  five  years  prior  to  the  death  of  decedent, 
shall  remain  a  lien  on  the  real  estate  of  such  decedent  longer 
than  two  years  after  the  decease  of  such  debtor,  unless  an  action 
for  the  recovery  thereof  be  commenced  against  such  decedent, 
his  heirs,  executors  or  administrators  within  the*  period  of  two 
years  after  his  death,  and  duly  prosecuted  to  judgment. 

The  executor  or  administrator  is  neither  bound  nor  allowed 
to  pay  any  claims  which  are  not  valid,  legal  debts  of  the  estate. 
Claims  barred  by  the  Statute  of  Limitations  should  not  be  recog- 
nized by  the  executor  or  administrator.  All  the  simple  contract 
debts  of  the  deceased  generally  rank  alike,  and  in  case  of  in- 
solvency each  takes  the  same  proportion  as  the  others.  If  the 
executor  or  administrator  exhausts  the  estate  by  paying  the  pre- 
ferred debts,  this  prevents  the  common  debts  from  recovering 
anything,  either  against  the  estate  or  the  executor  or  adminis- 
trator personally,  and  the  same  is  true  of  a  lower  class  of 
preferred  debts  if  the  estate  is  exhausted  in  paying  a  higher 
class  of  debts. 

The  legitimate  expenses  of  administration  are  to  be  met  out 
of  the  assets  of  the  estate,  but  the  proper  mode  of  doing  this  is 


EXECUTORS  AND  ADMINISTRATORS  529 

for  the  representative  to  make  the  necessary  disbursements,  for 
which  he  will  be  allowed  credit  in  his  accounts  rather  than  by 
allowing  such  expenses  as  a  direct  charge  against  the  estate,  as 
the  expenses  of  administration  are  not  debts  of  the  decedent. 

The  costs  of  administration  include  all  expenditures  which 
an  executor  or  administrator  is  obliged  to  pay  out  for  the  due 
administration  of  the  estate,  such  as  expenses  of  probating  the 
will  and  securing  a  decree  of  appointment,  costs  of  suit  brought 
by  or  against  him  in  defense  of  the  estate,  costs  of  proceedings 
proper  to  the  settlement  of  the  estate  in  the  Orphans'  Court,  and 
the  like.  Costs  of  administration  are  generally  preferred  over 
the  payment  of  other  debts,  second  only  to  the  funeral  expenses 
and  costs  of  last  illness. 


Presentation  of  Claims. 

The  procedure  for  the  presentation  of  claims  against  the 
estate  and  actions  to  enforce  payment  thereof  vary  so  widely  in 
the  different  States  that  the  statutes  of  each  State  furnish  the 
only  safe  guide  in  each  instance.  There  are  several  important 
features  which  are  common  to  all  the  States,  which  we  will 
briefly  consider. 

Claims  should  be  presented  to  the  executor  or  administrator 
immediately  upon  receiving  notice  of  their  appointment.  In 
making  the  statement  or  the  presentation  of  the  claim  to  the 
executor  or  administrator,  it  is  not  generally  necessary  to  follow 
any  formal  method  of  statement ;  any  statement  which  gives  the 
amount  and  nature  of  the  claim  with  sufficient  precision  to  pre- 
vent a  subsequent  claim  for  the  same  debt  will  be  enough.  Pres- 
entation to  one  of  several  executors  or  administrators  is  sufficient. 
If  the  executor's  or  administrator's  notice  requiring  claims  to  be 
presented  specifies  the  office  of  a  certain  attorney  as  the  place 
for  presenting  them,  it  is  sufficient  if  a  statement  of  the  claim  in 
writing  is  left  at  the  attorney's  office. 

According  to  the  weight  of  authority,  knowledge  on  the  part 
of  an  executor  or  administrator  of  the  existence  of  a  debt  or 
claim  against  the  estate  is  not  sufficient  to  dispense  with  the 
necessity  of  presentation.  A  debt  which  is  not  due  at  the  time 
of  proving  claims,  but  is  payable  absolutely  at  a  definite  time  in 
the  future,  may  be  proved  as  a  claim  against  the  estate  and  funds 
retained  to  meet  it.  It  is  a  general  rule  that  all  claims  against 
the  deceased  should  be  presented  for  allowance,  and  as  used  in 
the  statutes  under  discussion  the  word  "claims"  is  held  to  include 
34 


530  EXECUTORS  AND  ADMINISTRATORS 

such  debts  or  demands  as  existed  against  the  decedent  in  his 
lifetime  and  might  have  been  enforced  against  him  by  actions 
at  law. 

According  to  the  weight  of  authority,  a  debtor  whose  claim 
is  secured  by  mortgage,  pledge  or  any  specific  lien  need  not 
present  his  claim  for  allowance  in  order  to  preserve  his  right 
to  subject  the  property  covered  by  the  lien  to  the  satisfaction  of 
his  claim,  for  the  reason  that  such  claims  cannot  in  any  just 
sense  be  considered  claims  against  the  estate,  but  the  right  to 
subject  specific  property  to  the  claim  arises  from  the  contract 
of  the  debtor,  whereby  he  has  during  life  set  aside  certain  prop- 
erty for  its  payment,  and  such  property  does  not,  except  in  so 
far  as  its  value  may  exceed  the  debt,  belong  to  the  estate,  and 
the  instrument  being  of  record  or  the  property  being  in  the  pos- 
session of  the  creditor  is  notice  to  all  the  world  of  the  contract. 
But  where  a  mortgagee,  pledgee  or  other  secured  creditor  seeks 
to  obtain  payment  either  in  full  or  of  a  deficiency  out  of  the 
general  assets  of  the  estate  and  thus  to  enforce  his  claim  against 
property  not  covered  by  his  lien  or  held  by  him  as  security,  his 
claim  stands  on  the  same  footing  with  the  claims  of  other  cred- 
itors and  must  be  presented  for  allowance.  The  security  of  a 
mortgagee,  pledgee  or  other  secured  creditor  is  not  affected  by 
his  presentation  and  securing  the  allowance  of  his  claim. 

It  is  very  generally  provided  by  statute  that  claims  presented 
or  filed  against  a  decedent's  estate  shall  be  verified  by  an  affidavit 
as  to  their  correctness.  In  New  Jersey  it  was  formerly  held  that 
no  recognition  of  a  claim  by  the  personal  representative  or  by  the 
Probate  Court  could  dispense  with  the  requirement  that  claims 
be  presented  under  oath  and  within  the  statutory  period;  it  has 
recently  been  provided  by  statute  in  that  State  that  if  a  personal 
representative  in  good  faith  pays  a  claim  not  presented  under 
oath,  and  the  claim  is  proved  to  have  been  a  just  one,  he  shall 
have  allowance  for  the  payment  if  there  be  sufficient  assets  to 
pay  the  debts  of  equal  degrees  in  full,  and  that  if  the  assets  are 
not  sufficient,  the  representative  shall  be  allowed  for  the  pro  rata 
amount  which  the  creditor  would  have  been  entitled  to  receive 
if  the  claim  had  been  presented  duly  verified. 

A  creditor  who  has  not  presented  his  claim  within  the  regu- 
lar statutory  period,  although  precluded  from  sharing  in  the 
inventoried  assets  of  the  estate,  is  entitled  to  participate  in  sub- 
sequently discovered  assets  not  inventoried  or  accounted  for  by 
the  personal  representatives,  provided,  however,  his  claim  is 
proved  and  allowed  for  this  purpose.    The  creditor,  if  successful 


EXECUTORS  AND  ADMINISTRATORS  531 

in  establishing  his  claim,  is  entitled  to  a  special  judgment  to  be 
satisfied  out  of  the  uninventoried  assets  subsequently  discovered. 

Disputed  Claims. 

The  personal  representative  of  a  decedent  may  contest  any 
claim  which  in  his  opinion  ought  not  to  be  allowed  against  the 
estate,  and  any  person  having  an  interest  in  the  estate  adverse 
to  the  allowance  of  the  claim  may  contest  it.  Heirs  and  dis- 
tributees may  contest  the  allowance  of  the  claims  of  creditors, 
or  of  the  representative ;  and  one  creditor  may  contest  the  claims 
of  other  creditors  provided  the  assets  are  insufficient  to  pay  the 
claims  of  all.  An  objection  cannot  be  made  by  a  person  who, 
although  interested  in  the  estate,  could  not  be  benefited  by  a 
disallowance  of  the  claim. 

It  is  the  duty  of  the  representative  to  contest  all  claims  pre- 
sented against  the  estate  which  he  believes  are  unfounded  or 
unjust,  and  which  are  not  presented  and  authenticated  according 
to  the  requirements  of  the  statute.  But  the  propriety  of  contest- 
ing particular  claims  must  frequently  be  left  largely  to  the  repre- 
sentative's discretion  and  no  presumption  of  bad  faith  or 
misconduct  will  be  made  against  him.  Objections  to  a  claim 
may  be  based  on  a  denial  of  its  justice  or  validity,  or  may  rest 
on  the  ground  that  the  claim  is  barred,  or  that  the  claimant  has 
not  complied  with  the  statutory  requirements  as  to  its  presenta- 
tion and  authentication.  But  it  is  not  a  valid  objection  to  the 
claim  of  a  creditor  that  a  similar  demand  has  been  presented 
against  another  estate,  or  to  the  claim  of  a  representative  that 
he  has  not  filed  his  bond. 

Insolvent  Estates. 

In  pursuance  of  the  general  plan  which  is  adopted  in  a  ma- 
jority of  the  States,  of  gathering  in  all  claims  against  an  estate, 
and  paying  them  all  at  the  same  time,  so  far  as  may  be,  and  in 
the  same  proportion,  if  the  assets  are  not  enough  for  all,  there 
are  enacted  in  most  States  statutes  which  exempt  an  executor  or 
administrator  from  liability  to  suit  for  a  given  time  in  order 
that  he  may  have  an  opportunity  to  collect  the  claims  against  the 
estate,  and  get  an  idea  of  whether  the  estate  is  solvent  or  not. 
The  executor  or  administrator,  having  thus  collected  the  assets 
and  the  claims  against  the  estate,  may  decide  whether  or  not  the 
estate  is  insolvent.  As  soon  as  the  debts  which  the  executor  or 
administrator  recognizes  as  valid  exceed  the  assets  which  he  has 


532  EXECUTORS  AND  ADMINISTRATORS 

in  possession  or  control,  the  estate  is  insolvent,  and  must  be 
treated  as  such.  Often  this  question  cannot  be  determined  until 
the  time  for  filing  the  claim  has  expired,  for  although  the  assets 
may  seem  sufficient  up  to  the  time,  yet  at  the  last  moment  claims 
may  be  filed  which  will  render  the  estate  insolvent.  The  question 
of  whether  or  not  an  estate  is  insolvent  when  there  are  assets 
in  several  jurisdictions  and  ancillary  administrations  is  one  of 
some  difficulty.  It  has  been  decided  that  the  safest  rule  is  that 
each  jurisdiction  should  decide  the  question  upon  the  debts 
proved  before  it,  and  the  assets  in  its  hands.  In  deciding  whether 
or  not  the  estate  is  insolvent  only  valid  claims  can  be  considered. 
Thus  debts  barred  by  the  Statute  of  Limitations  must  be  rejected. 

If  the  claims  of  partnership  creditors,  together  with  those  of 
the  separate  creditors,  make  up  a  sum  greater  than  the  total 
assets  of  an  estate,  including  the  share  of  the  partnership  asset 
which  belong  to  the  estate,  each  class  of  claims  must  be  primarily 
remitted  to  its  own  class  for  payment,  and  can  come  upon  the 
other  only  after  the  latter  debts  have  been  satisfied.  'This  rule 
arises  from  the  fact  that  the  separate  creditors  of  the  deceased 
have  no  claims  upon  the  assets  of  the  estate  until  all  the  firm 
debts  are  paid,  since  the  only  assets  of  the  estate  of  the  deceased 
arising  from  the  partnership  funds  are  the  surplus  of  such  funds 
over  partnership  debts.  And  conversely,  the  partnership  debts 
are  to  be.  satisfied  out  of  partnership  assets,  and  can  only  come 
upon  the  separate  estate  after  the  separate  creditors  have  been 
satisfied  in  accordance  with  the  established  bankruptcy  laws. 
Thus  in  settling  an  insolvent  estate  of  a  deceased  partner,  if  both 
individual  and  co-partnership  claims  are  proved  against  the 
estate,  two  lists  of  claims  are  made,  and  the  partnership  estate 
is  distributed  among  the  partnership  creditors  and  the  separate 
estate  among  the  separate  creditors. 

If  the  deceased  partner  owed  the  firm,  and  his  estate  is  in- 
solvent, as  well  as  the  surviving  partner,  the  estate  is  liable  to 
make  good  the  amount  which  the  deceased  partner  equitably 
owed  the  living  partner  as  an  individual.  This  is  one-half  (if 
the  shares  of  each  partner  in  the  partnership  are  equal)  of  what 
he  owed  the  firm ;  that  is,  the  living  partner  comes  in  as  an  indi- 
vidual creditor  of  the  estate.  To  this  extent  only  can  the  surviv- 
ing partner  or  his  creditors  reach  the  individual  assets  of  the 
estate.  When,  however,  there  is  no  joint  or  partnership  estate 
at  the  death  of  the  partner,  and  there  is  no  solvent  partner,  it  is 
held  that  the  firm  creditors  may  come  in  equally  with  the  separate 
creditors  against  the  separate  estate. 


EXECUTORS  AND  ADMINISTRATORS  533 

A  promissory  note  given  by  a  personal  representative  for  a 
debt  of  his  decedent  is  neither  a  payment  nor  an  extinguishment 
of  such  debt,  unless  it  is  shown  that  the  parties  intended  that  it 
should  operate  as  such.  A  personal  representative  has  authority 
to  assign  bills  and  notes  due  to  the  decedent  in  satisfaction  of 
debts  due  by  him,  but  he  has  no  power  by  assignment  or  other- 
wise to  appropriate  them  to  the  payment  of  the  debt  of  one 
creditor  to  the  exclusion  of  others  of  equal  or  higher  rank.  If 
a  creditor  of  an  estate  accepts  notes  and  obligations  in  favor  of 
an  estate  as  collateral  security  to  collect  and  apply  to  his  debt, 
and  fails  to  collect  or  to  show  good  reason  for  his  failure,  he 
will  be  charged  with  the  amount  of  such  notes  and  obligations, 
and  if  this  amount  is  equal  to  his  claim  against  the  estate,  such 
claim  is  extinguished. 

Any  debt  or  demand  which  constitutes  a  legal  set-off  for  or 
against  a  party  in  his  lifetime,  if  still  subsisting  at  the  time  of 
his  death,  will  constitute  a  good  set-off  for  or  against  his  personal 
representative,  and  a  personal  representative  has  no  right  to  pay 
a  debt  due  by  the  estate  which  he  represents  to  a  person  who  is 
himself  indebted  to  the  estate,  without  first  having  set  off  the 
debt  due  to  the  estate  against  that  due  by  the  estate. 

Filing  Accounts. 

It  is  only  possible  to  make  a  few  general  observations  of 
this  important  part  of  an  executor's  or  an  administrator's  duty, 
this  subdivision  of  the  general  subject  under  discussion  being 
entirely  too  comprehensive  to  treat  in  detail.  An  executor  or 
administrator  should  always  keep  separate  entries  of  all  moneys 
received  and  paid  entirely  distinct  from  his  private  account.  He 
should  charge  himself  with  the  inventory,  with  any  excess  of 
sales  or  collections  above  the  appraisement,  and  with  all  receipts. 
He  should  credit  himself  with  all  disbursements,  he  should  keep 
a  separate  bank  account,  and  on  no  excuse  mingle  one  dollar  of 
the  trust  funds  with  his  individual  money.  He  should  not  borrow 
or  use  any  portion  of  the  assets,  nor  lend  same  to  relatives,  part- 
ners or  friends.  He  should  be  careful  to  keep  large  sums  of 
money  at  interest,  but  always  so  that  there  may  be  no  loss.  He 
should,  of  course,  take  receipts  for  all  payments.  Under  the  law 
of  Pennsylvania  an  account  must  be  filed  in  Court  within  one 
year  from  the  time  the  personal  representative  qualified,  and 
shortly  before  the  year  expires,  accounts  should  be  prepared  and 
filed  and  notice  thereof  sent  to  all  parties  in  interest.  The  ac- 
count should  not  contain  items  of  distribution,  and  rents  should 


534  EXECUTORS  AND  ADMINISTRATORS 

be  excluded  from  accounts  of  personalty.  The  account  of  prin- 
cipal should  be  stated  by  itself  and  the  income  account  should  be 
separate  in  all  cases  where  it  is  necessary.  Accounts  of  the  pro- 
ceeds of  sale  of  real  estate  must  also  be  separate  from  the  admin- 
istration account.  Dividends  upon  railroad  and  bank  stock 
declared  since  the  testator's  death  belong  to  the  income  account. 

In  Pennsylvania  the  following  judicial  directions  may  be 
used  as  a  guide  in  preparing  an  account:  "The  correct  form  is 
to  charge  the  accountant  (executor  or  administrator)  with  the 
amount  of  the  inventory  and  appraisement  of  personal  property, 
and  all  money  received  since  filing  the  same,  from  debts  due 
decedent,  not  inventoried,  together  with  any  excess  over  the  ap- 
praised value  realized  by  a  sale  of  the  personal  property  or  any 
portion  thereof,  and  any  proper  surcharges,  either  admitted  or 
duly  proved.  Credit  is  then  to  be  allowed  for  preferred  debts, 
expenses  of  administration,  allowance  to  the  widow  or  children, 
if  claimed,  loss  upon  appraisement  by  sale,  and  debts  of  decedent, 
if  undisputed  and  estate  solvent.  The  true  balance  for  distribution 
will  thus  appear." 

When  the  account  is  prepared  it  is  filed  and  advertised  and 
then  comes  up  to  be  audited  before  the  Court.  If  any  party  in 
interest  has  any  objection  to  the  allowance  or  disallowance  of 
any  claim,  he  should  appear  at  the  audit  and  enter  a  contest.  A 
day  is  then  fixed  by  the  Court  when  the  contested  claim  will  be 
passed  upon.  The  account,  if  in  proper  form,  and  there  being 
no  objections,  or  if  so  the  same  having  been  decided,  is  first  ap- 
proved "nisi"  and  three  weeks  thereafter,  if  no  further  claims 
or  objections  are  presented  against  the  account,  the  same  is  con- 
firmed by  the  Court  absolutely,  after  which  distribution  of  the 
estate  will  be  made  either  in  accordance  with  the  terms  of  a  will 
or  the  intestate  laws  of  the  State,  as  the  case  may  be. 

It  is  the  duty  of  a  personal  representative,  upon  the  settle- 
ment of  his  decedent's  estate,  and  after  payment  of  debts,  to 
make  distribution  of  the  decedent's  property,  in  the  manner 
directed  by  the  will,  as  in  the  payment  of  legacies,  or  in  case  of 
intestacy  or  as  to  property  not  disposed  of  by  the  will,  in  the 
manner  prescribed  by  statute,  upon  an  order  of  the  Court.  It  is 
no  part  of  his  duty  to  partition  or  convey  among  heirs  or  devisees 
the  real  estate  of  his  decedent,  or  to  pay  legacies  charged  upon 
the  land  unless  empowered  by  the  will  to  do  so.  The  power  of 
making  distribution  cannot  be  delegated  by  the  personal  repre- 
sentatives to  another.  After  an  order  of  distribution,  it  is  the 
duty  of  the  personal  representative  to  hold  the  funds  in  his  hands 


EXECUTORS  AND  ADMINISTRATORS  535 

subject  to  the  order  of  the  Court,  and  to  pay  them  to  such  parties 
as  the  Court  may  direct ;  further  than  this  he  has  no  standing  in 
Court  or  before  an  auditor  respecting  the  distribution  of  the 
funds  in  his  hands. 

In  cases  where  the  decedent  left  a  will,  the  executor,  after  he 
has  paid  all  the  debts  of  the  estate  which  have  been  duly  presented 
to  him  within  the  time  limited  by  law,  and  allowed  by  him  or 
by  the  Court  as  valid  debts  of  the  estate,  must  next  pay  the 
various  legacies  which  are  given  by  the  testator  in  his  will. 

The  rule  that  legacies  shall  only  be  satisfied  and  paid  after 
all  debts  have  been  paid  is  one  of  obvious  justice  and  is 
recognized  in  all  States.  The  general  subject  of  the  construction 
of  the  terms  of  legacies,  the  estate  given  by  them,  and  like  ques- 
tions, belong  more  properly  to  the  law  of  wills  which  has 
previously  been  considered,  and  in  the  present  connection  we  will 
confine  our  inquiry  to  the  several  rules  which  affect  the  payment 
of  legacies  by  an  executor. 

It  was  long  the  established  rule  of  Courts  of  equity  that  when 
a  debtor  decedent  bequeathed  to  his  creditor  a  legacy  equal  to  or 
exceeding  the  amount  of  the  debt,  this  bequest  should  be 
presumed,  in  the  absence  of  any  contrary  intention  expressed  in  or 
inferable  from  the  will,  to  be  meant  by  the  testator  as  a  payment 
and  satisfaction  of  the  debt.  However,  this  rule  has  been  regarded 
with  disfavor  in  the  recent  cases  where  from  any  circumstance  in 
the  will  it  might  be  inferred  that  the  testator  had  a  different  inten- 
tion. So  little  has  this  rule  been  favored  by  the  courts  that  in 
one  of  the  more  recent  cases  the  Court  said  that  if  nothing  was 
said  on  the  subject  in  the  will  the  modern  rule  of  construction 
would  be  that  a  bequest  is  to  be  regarded  as  a  bounty  and  not 
as  the  payment  of  a  debt.  Slight  circumstances  in  a  will  are 
regarded  as  showing  an  intent  in  this  regard.  Thus,  where  the 
testator  has  left  a  legacy  of  less  amount  than  the  debt  or  of  a 
different  nature,  or  not  equally  beneficial  in  some  particular,  it 
is  to  be  inferred  that  he  did  not  intend  the  legacy  to  operate 
as  payment  of  the  debt.  So  where  the  debt  was  not  contracted 
until  after  the  making  of  the  will  it  is  considered  evident  that  the 
testator  could  not  have  had  any  intention  to  satisfy  the  debt  when 
he  made  the  legacy.  The  legacy  of  a  specific  chattel,  however 
great  its  value,  is  not  considered  as  the  satisfaction  of  a  debt 
unless  it  is  so  stated  expressly  in  the  will.  Regarding  the  con- 
verse of  this  rule,  the  effect  of  a  legacy  bequeathed  to  a  debtor 
instead  of  a  creditor  of  a  testator,  no  presumption  of  a  release  or 
extinguishment  of  the  debt  exists,  but  such  intention  must  be 


536  EXECUTORS  AND  ADMINISTRATORS 

clearly  expressed.  If  a  testator  does  expressly  release  a  debtor 
from  his  debt,  this  release  only  takes  effect  subject  to  the  pay- 
ment of  the  testator's  debts. 

There  is  also  in  many  States  a  statutory  provision  by  which 
an  executor  when  paying  a  legacy  may  require  from  the  legatee 
a  bond  to  refund  the  amount  in  case  subsequent  debts  appear 
which  are  not  barred  and  must  be  paid.  This  bond  protects  the 
executor  in  making  the  payment,  and  if  he  pays  over  the  legacy 
without  taking  such  a  bond  he  is  liable  to  a  creditor  for  the 
amount  of  the  legacy  if  the  payment  was  made  before  the  time 
had  elapsed  which  barred  the  claim,  or  if  for  any  reason  the 
claim  is  not  barred  by  non-presentation  or  negligence  in  suit 
But  the  fact  that  he  does  not  take  a  refunding  bond  does  not 
invalidate  the  title  of  the  legatee  to  the  amount  paid  him. 

At  law  a  legacy,  whether  specific  or  ^general,  does  not  vest 
in  the  legatee  so  as  to  be  subject  to  his  death  or  to  be  enforceable 
by  him  until  it  is  assented  to  by  the  personal  representative  or  at 
least  until  it  may  be  seen  with  reasonable  certainty  that  it  will 
not  be  needed  to  pay  claims  of  a  higher  rank,  unless  the  legacy  is 
charged  on  the  land.  In  equity,  however,  the  executor  is  con- 
sidered as  a  trustee  and  may  be  compelled  to  give  his  consent,  if 
he  refuses  it  without  just  cause.  The  representative's  assent 
may  not  be  in  writing,  but  may  be  expressed  or  implied  and  may 
be  either  shown  by  direct  proof  or  inferred  from  circumstances 
consistent  with  the  intent  to  render  to  the  legatee  or  devisee  the 
legal  title  and  control,  as  where  a  considerable  length  of  time 
has  elapsed  or  where  the  legatee  has  been  in  possession  for  some 
time  with  the  consent  of  the  representative. 

Order  of  Payment. 

If  the  assets  oi  the  estate  are  not  sufficient  to  pay  all  the 
legacies,  the  order  of  payment  as  established  by  courts  of  equity 
is  as  follows :  Specific  legacies  and  devises  are  to  be  paid  in 
preference  to  general  legacies  and  devises,  and  in  the  absence 
of  any  provisions  in  the  will  all  the  general  legacies  and  devises 
must  abate  equally  their  proportion  of  the  whole  amount 
bequeathed;  and  annuities,  if  not  payable  from  any  particular 
funds,  stand  on  the  same  footing  as  general  legacies. 

This  rule  as  to  the  abatement  of  legacies  is  subject  to  any 
expressed  intention  of  the  testator  in  his  will,  directing  the 
manner  or  the  order  of  priority  in  which  the  various  legacies 
shall   abate   in  case  of  a  deficiency  of  assets.     For  instance, 


EXECUTORS  AND  ADMINISTRATORS  537 

a  testator  may  give  one  general  legatee  a  priority  over 
others.  The  rule  as  to  abatement  is  also  subject  to  the  further 
exception  that  where  a  legacy  is  given  to  one  in  satisfaction  or 
lieu  of  some  valuable  right  (for  example,  where  a  legacy  is  in 
lieu  of  dower  or  curtesy)  the  legatee  is  deemed  a  purchaser, 
and  his  legacy  will  not  abate  until  those  of  beneficiaries  of  the 
same  class  are  exhausted.  If  the  assets  generally  bequeathed 
are  not  sufficient  to  pay  all  the  debts,  all  the  specific  legatees 
must  abate  their  legacies  equally,  as  debts  have  the  prior  claim 
upon  the  whole  estate  over  all  voluntary  dispositions.  This  is 
upon  the  theory  of  law  that  a  man  must  be  just  before  he  is 
generous. 

In  a  majority  of  the  States  the  time  when  legacies  may  be 
sued  for,  and  are  therefore  absolutely  payable,  is  fixed  by 
statute,  so  that  while  a  legacy  may  be  paid  before  that  time  by 
an  executor  at  his  peril,  yet  he  cannot  be  compelled  to  pay 
before  that  time.  In  case  of  a  residuary  legacy  it  cannot  be 
known  whether  the  legacy  will  be  valid  until  it  is  known 
whether  the  debts  and  other  legacies  will  exhaust  the  assets. 
The  right  of  a  residuary  legatee  to  the  payment  of  his  legacy 
being  so  dependent,  he  cannot  bring  suit  for  the  payment  thereof 
without  showing  such  facts  as  justify  the  payment  either 
of  the  whole  or  a  part  of  the  residue  to  him ;  that  is,  that  the 
executor  has  assets  not  needed  to  pay  debts  or  the  other  legacies, 
and  that  the  payment  will  not  be  injurious  to  the  estate.  These 
facts  may  not  arise  until  long  after  the  end  of  the  one-year 
time  limit   for   the   payment  of   legacies. 

When  an  executor  is  also  legatee  or  distributee,  no  formal 
act  is  necessary  to  vest  title  to  the  legacy  in  him  as  an  individual, 
and  any  act  on  his  part  showing  an  intention  to  retain  assets 
in  payment  thereof  is  sufficient.  But  he  cannot  without  an 
order  of  Court  or  a  settlement  or  agreement  with  his  co-legatee 
or  co-distributee  retain  his  legacy  or  share  from  the  assets  of 
the  estate  to  the  exclusion  of  or  in  preference  to  other  legatees 
or  creditors,  as  by  applying  it  to  debts  due  by  him  to  the  estate. 
He  cannot  transfer  to  himself  as  legatee  property  belonging 
to  the  estate  before  he  has  settled  his  administration  account 
and  paid  the  debts  and  prior  legacies  due  from  the  estate. 

Likewise  an  executor  who  is  also  residuary  legatee  acquires 
full  title  to  the  residuary  assets  only  when  all  debts,  charges 
and   legacies   are   paid. 

Advances  and  disbursements  made  by  the  representative 
for  the  benefit  of  legatees  are  to  be  reimbursed  from  their 


538  "EXECUTORS  AND  ADMINISTRATORS 

respective  shares  in  the  estate;  and  they  should  be  specially 
adjusted  by  the  personal  representative  aside  from  his  ordinary 
administration  accounts,  by  way  of  an  offset  to  the  amount 
due  from  the  estate  in  his  hands  to  the  legatee.  If  the  legacy 
lapses  in  interest  after  the  advances  have  been  made  the 
representative  may  recover  them  by  an  action  in  his  own  right 
as  for  money  had  and  received. 

Pa3nnent  of  Legacies. 

In  the  payment  of  legacies  the  executor  acts  at  his  own 
peril  unless  he  is  acting  under  an  order  of  the  Court,  and  he 
must  decide  to  whom  legacies  are  to  be  paid.  It  is  not  in  every 
case  sufficient  to  pay  the  legacy  to  the  person  named  or 
described  in  the  will  as  legatee,  for  he  may  be  under  some 
disability.  For  example,  if  the  legatee  is  an  infant,  the  legacy 
cannot  be  paid  to  him  nor  to  his  father  or  any  relative,  for  the 
proper  person  to  whom  such  payment  is  to  be  made  is  a 
guardian  duly  appointed,  and  the  same  rule  is  true  in  the 
case  of  other  persons  under  guardianship,  such  as  lunatics, 
spendthrifts  and  the  like.  In  this  connection  it  is  important 
to  bear  in  mind  that  a  guardian  or  trustee  appointed  in  one  State 
is  not  entitled  to  receive  the  payment  of  a  legacy  in  another 
where  the  estate  is  being  administered,  but  there  should  be  a 
guardian  duly  appointed  and  given  proper  security  in  the 
latter  State. 

When  a  legacy  is  given  generally  to  one  for  life  and  to 
others  upon  his  death,  the  legacy  should  be  paid  to  the  legatee 
without  requiring  any  security  from  him  to  secure  the  estate 
from  waste  in  his  hands,  unless  there  appears  to  be  danger  of 
his  wasting  or  removing  the  property.  If  the  legacy  is  a  specific 
legacy  for  life  to  one,  and  absolutely  after  the  life  estate  to 
another,  and  the  executor  delivers  it  to  the  life  tenant,  and 
takes  a  proper  receipt  or  inventory  for  the  remainderman,  he  is 
discharged  from  further  liability.  In  case  the  legatee  has  died, 
the  legacy  is  payable  to  his  administrator  or  executor.  A  legacy 
is  liable  to  attachment  or  to  trustee  or  garnishee  process  at  any 
time  after  the  interest  in  it  has  vested  in  the  legatee.  Therefore, 
when  an  executor  has  been  summoned  as  trustee  of  a  legatee,  or 
the  legacy  has  been  attached,  he  is  obliged  to  retain  the  legacy 
until  the  judgment  in  the  case  allows  him  to  dispose  of  it,  either 
by  payment  to  the  legatee  or  the  plaintiff  in  the  case  as  the  judg- 
ment may  be.    It  has  been  held  that  a  specific  legacy,  for  example, 


EXECUTORS  AND  ADMINISTRATORS  539 

of  shares  in  stock  standing  in  the  name  of  the  testator,  may  be 
attached  for  a  debt  due  by  his  estate. 

Unless  a  particular  mode  of  paying  a  legacy  is  expressly 
prescribed  by  the  will  or  by  statute,  payment  may  in  general 
be  made  in  any  manner  which  gives  to  the  legatee  his  due  pro- 
portion of  the  estate  and  which  shows  an  absolute  payment. 
Usually,  the  payments  should  be  made  in  money,  although 
with  the  consent  of  the  parties  in  interest  it  may  be  made  in 
other  kinds  of  personal  property.  It  has  been  held  that  a 
deposit  in  bank  to  a  legatee's  credit  without  notice  thereof  does 
not  constitute  a  good  payment.  A  payment  or  distribution  in 
kind  of  stocks,  bonds,  notes  or  other  securities  may  be  made 
where  the  parties  interested  consent  thereto,  or  where  it 
appears  that  a  conversion  of  the  securities  into  money  should 
cause  a  loss.  The  effect  of  such  a  distribution  is  to  discharge 
the  representative  from  liability  for  such  assets  and  to  give  to 
the  legatee  who  receives  the  securities  the  right  to  maintain 
or  defend  suits  with  respect  thereto. 

Specific  Legacies. 

As  to  specific  legacies,  the  increase  of  them  from  the  time 
of  the  testator's  death  belongs  to  the  legatee,  and  not  the 
residuary  legatee.  Hence  where  there  is  a  specific  bequest  of 
stock,  the  dividends  belong  to  the  legatee  from  the  death  of 
the  testator,  and  the  increase  of  cattle  which  has  been  specifically 
bequeathed  likewise  belongs  to  the  legatee.  General  legacies 
carry  interest  from  the  time  when  they  are  payable.  Although 
interest  on  a  legacy  is  not  allowed  until  the  end  of  a  year  from 
the  testator's  death,  yet  when  the  income  of  a  fund  is  given  the 
income  begins  immediately  upon  the  death  of  the  testator  and 
interest  is  allowed  upon  the  income,  if  it  is  not  paid  at  the  end 
of  the  year  from  the  testator's  death,  when  it  is  due.  The  fact 
that  there  are  not  sufficient  assets  to  allow  the  legacy  to  be  paid 
when  it  is  due  does  not  prevent  the  accumulation  of  interest 
thereon  until  it  is  paid.  When  a  legacv  is  given  by  a  parent 
to  a  child  or  for  the  support  of  the  child  and  no  other  provision 
is  made  for  its  maintenance,  it  is  presumed  that  the  testator 
intends  the  child  to  have  the  benefit  of  the  legacy  from  the  death 
of  the  testator,  and  it  has  consequently  been  held  that  interest 
begins  to  run  in  such  a  case  from  the  death  of  the  testator, 
although  the  legacy  may  not  be  payable  until  the  legatee  reaches 
his  or  her  majority. 


540  EXECUTORS  AND  ADMINISTRATORS 

A  payment  or  distribution  properly  made  and  receipted  for 
is  binding  on  the  personal  representative  unless  it  can  be 
impeached  for  fraud,  mistake  or  improper  means  used  in  pro- 
curing it.  It  is  also  binding  on  the  legatee  or  distributee  who 
accepts  the  payment.  After  full  payment  or  distribution  the 
personal  representative  is  released  from  further  liability  to  the 
legatees  or  creditors  for  acts  done  in  his  representative  capacity, 
and  he  cannot  thereafter  exercise  any  control  over  the  property 
distributed. 

After  the  payment  of  debts,  the  duty  of  the  administrator 
in  cases  of  intestacy  is  to  distribute  the  estate  among  those 
entitled  to  it  by  law.  The  persons  to  whom  and  shares  in  which 
the  estate  shall  be  distributed  are  regulated  by  statute  in  all 
the  States  and  have  considerable  similarity  in  their  more 
important  provisions.  . 

In  Pennsylvania  a  distinction  is  made  between  the  estate 
which  a  woman  holds  as  her  separate  estate  and  that  which  is 
governed  by  the  rules  of  the  common  law.  The  husband  takes 
the  whole  of  the  latter,  while  of  the  former  he  takes  the  whole 
only  when  there  are  no  children.  If  there  is  a  child  or  children, 
the  surviving  husband  divides  with  them  the  personal  estate  of 
the  decedent,  share  and  share  alike.  In  the  case  of  the  hus- 
band dying,  the  widow  takes  one-third  of  his  personal  estate, 
if  there  is  issue;  if  none,  but  there  are  other  kindred,  she  takes 
one-half;  if  there  is  no  kindred,  she  takes  all  the  personalty. 

In  the  event  of  there  being  no  surviving  husband  or  widow, 
the  personal  estate  of  the  decedent  goes  to  the  next  of  kin, 
which  summarizing  the  law  of  Pennsylvania  (which  is  prac- 
tically the  same  as  in  other  States),  the  personal  estate  goes  first 
to  the  children  and  grandchildren  by  right  of  representation; 
second,  to  father  and  mother  or  their  survivor;  third,  to  col- 
lateral heirs  as  follows:  (a)  brothers  and  sisters  of  the  whole 
blood;  (b)  uncles  and  aunts;  (c)  descendants  of  brothers  and 
sisters ;  and,  fourth,  to  next  of  kin. 

The  right  to  a  distributive  share  is  a  vested  interest,  vesting 
in  those  entitled  immediately  on  the  death  of  the  intestate,  and, 
although  a  settlement  of  the  estate  is  delayed,  and  a  decree  of 
distribution  postponed,  yet  the  decree  of  distribution  when 
made  relates  back  to  the  time  of  the  decease  of  the  intestate, 
and  apportions  the  estate  to  the  persons  then  entitled  or  their 
representatives. 

The  decree  does  not  create  the  right,  which  is  determined 
by  the  state  of  things  at  the  intestate's  death,  but  judicially 


EXECUTORS  AND  ADMINISTRATORS  541 

ascertains  the  distributees,  the  whole  amount  to  be  distributed 
and  the  amount  of  the  distributive  share  of  each.  The  adminis- 
trator may,  however,  make  a  payment  of  a  distributive  share 
without  the  decree  of  the  Probate  Court,  but  he  does  so  at  his 
peril.  If  he  pays  the  right  amount  to  the  right  person,  he  will 
be  credited  with  it  in  his  accounts.  And  if  money  has  been 
advanced  by  the  administrator  on  account  of  the  distributive 
shares,  and  he  is  compelled  to  pay  interest  on  funds  in  his  hands 
up  to  the  time  of  accounting,  he  should  charge  interest  on  the 
advance  made  to  the  distributees;  in  the  payment  of  distributive 
shares,  any  debt  due  to  the  estate  from  the  distributee  should  be 
deducted  from  his  share,  and  the  Probate  Court  may  determine 
the  amount  and  validity  of  the  debt  and  make  proper  order  to 
give  eflfect  to  the  set-off  and  deduction. 

Advancements  made  to  children  by  the  parents  in  their  life- 
time are  generally  considered  as  being  part  of  the  distributive 
share  of  the  children  in  the  intestate's  estate  and  are  to  be 
reckoned  as  such  in  computing  the  proper  distribution 
of  the  estate.  This  right  to  distribution  arises  in  cases  of  partial 
as  well  as  total  intestacy.  To  illustrate,  if  there  is  a  will,  but  also 
an  estate  not  covered  by  the  will,  or  if  the  will  fails  as  to  some 
portion  of  the  estate  which  is  not  covered  by  any  residuary 
clause,  the  intestate  estate  is  distributed  under  the  statute  of  dis- 
tributions, as  if  there  had  been  no  will.  Thus,  if  the  deceased  was 
a  married  man,  and  there  is  partial  intestacy,  his  widow  gets  her 
distributive  share,  and,  although  she  may  die  before  distribution, 
yet  her  representative  is  entitled  to  her  share. 

The  distribution  of  the  estate  among  the  various  next  of  kin 
is  governed  by  the  law  of  the  State  where  the  deceased  last  dwelt, 
although  it  is  different  from  that  of  the  State  where  the  goods  are 
located,  and  the  rights  of  next  of  kin  depend  upon  the  laws  of  the 
State  of  domicile.  The  domicile  of  a  married  woman  is  that  of 
her  husband,  and  the  rights  of  a  widow  to  her  distributive  share 
are  governed  by  the  laws  of  her  husband's  domicile. 

Successive  Administrators. 

An  outgoing  executor  or  administrator  before  the  estate 
is  settled  should  render  an  account,  stating  a  balance  due  to  or 
by  him  to  the  estate,  and  should  turn  over  the  balance,  if  due  by 
him  to  the  estate,  to  the  succeeding  administrator.  In  case  of 
the  death  of  the  executor  or  administrator,  the  same  should  be 
done  by  his  executor  or  administrator.    If  a  balance  is  due  to 


542  EXECUTORS  AND  ADMINISTRATORS 

the  estate,  and  is  not  turned  over  to  the  succeeding  adminis- 
trator, he  may  sue  for  it.  If  an  account  is  not  rendered  as 
required  the  succeeding  administrator  may  compel  it. 

From  the  above  statement  of  law  it  will  be  observed  that 
there  is  no  privity  of  estate  between  successive  administrators 
or  their  representatives,  and  a  succeeding  administrator  becomes, 
by  virtue  of  his  appointment,  the  representative  of  the  estate, 
so  that  he  is  entitled  to  call  the  preceding  executor  or  adminis- 
trator or  his  representative  to  account. 

Cases  also  occur  where  the  estate  is  indebted  to  the  out- 
going executor  or  administrator,  as,  for  example,  where  he  has 
advanced  money  to  the  estate,  as  in  some  cases  he  may  properly 
do.  These  advances  would  naturally  be  settled  by  retainer  by  the 
outgoing  executor  or  administrator  or  his  representatives  of 
funds  enough  belonging  to  the  estate  to  satisfy  the  debt.  How- 
ever, it  may  be  that  the  personal  estate  is  insufficient  for  that 
purpose  and  then  such  advances  become  a  charge  upon  whatever 
new  assets  come  into  the  hands  of  the  succeeding  administrator, 
even  upon  the  proceeds  of  real  estate  sold  by  him  to  pay  debts, 
and  this  charge  is  not  barred  by  the  Statute  of  Limitations.  The 
necessary  relief  in  such  a  case  is  for  the  outgoing  administrator 
or  executor  to  cite  the  succeeding  administrator  to  file  an  account 
upon  which  citation  there  would  be  a  hearing  at  which  the 
representatives  of  the  deceased  executor  or  administrator  might 
ask  for  an  order  of  Court  for  the  payment  of  his  claim.  Such 
a  claim  should,  however,  be  retained  from  the  assets  in  his  hands 
while  he  is  still  executor  or  administrator  and  an  accounting  made 
accordingly. 

Removal  or  Resignation. 

Having  considered  the  qualifications  of  executors  and  ad- 
ministrators, their  powers  and  duties,  we  will  next  inquire  into 
the  method  by  which  their  duties  may  be  terminated  and  will 
conclude  the  subject  with  a  brief  review  of  the  law  regulating 
suits  by  and   against  them. 

As  the  right  to  administer  upon  an  intestate  estate  is  regu- 
lated by  statute,  as  has  been  previously  seen,  it  follows  that  any 
person  who  is  entitled  to  administration  may,  if  he  has  not  lost 
the  right  by  his  own  act,  as  waiving  or  renouncing  it,  or  by  negli- 
gence in  not  claiming  it  when  he  ought,  or  not  applying  when 
cited,  apply  for  the  revocation  of  letters  which  have  been  granted 
to  another  wrongfully.    This  same  principle  applies  where,  after 


EXECUTORS  AND  ADMINISTRATORS  543 

an  executor  is  duly  appointed,  a  later  will  is  found  and  duly 
proved,  appointing  another  executor,  or  where,  after  an  adminis- 
trator has  been  appointed,  as  if  the  estate  were  intestate,  a  valid 
will  be  found  and  proved,  in  which  cases  the  letters  wrongfully 
granted  will  be  revoked.  The  question  arises,  whether,  when 
administration  is  granted  as  upon  an  intestate  estate,  and  it 
afterward  appears  that  a  will  was  left  by  the  deceased,  or  when 
administration  is  granted  to  one  not  entitled  to  it,  the  grant 
of  administration  is  made  void  by  the  discovery  of  the  will. 
Such  an  appointment  is  void  if  in  derogation  of  the  rights  of  the 
executor,  and  voidable  if  in  derogation  of  the  rights  of  the  next 
of  kin. 

The  same  personal  disqualifications  which  would  prevent 
the  appointment  of  an  executor  or  administrator  to  the  office 
will  be  sufficient  reason  for  his  removal,  if  occurring  after  his 
appointment.  Insolvency  alone,  if  it  does  not  give  ground  for 
apprehending  waste  or  loss  to  the  estate,  has  been  held  in  New 
Jersey  not  to  be  sufficient  cause  for  revoking  administration. 
But  the  opposite  is  the  law  in  Pennsylvania  and  is  probably  the 
better  rule. 

Embezzling  the  estate  or  wasting  it  or  mismanaging  it,  or 
committing  a  fraud  on  those  entitled  to  the  estate,  is  cause  for 
removal.  Failure  to  furnish  bond,  or  to  file  an  inventory  and 
appraisement,  or  to  file  an  account  are  all  causes  for  the  removal 
of  an  executor  or  administrator. 

Provision  is  generally  made  by  statute  for  the  resignation 
by  an  executor  or  administrator  of  the  office  to  which  he  has 
been  appointed,  and  if  the  circumstances  of  the  case  show  that  he 
can  do  so  without  detriment  to  the  estate,  he  is  allowed  to  resign. 
In  the  absence  of  statutes,  if  he  petitions  to  be  discharged,  the 
Court,  viewing  him  as  a  trustee,  will  upon  notice  to  all  parties 
interested,  or  who  might  become  interested  in  the  estate,  allow 
him  to  be  discharged  under  the  ordinary  law  of  trustees. 

Actions  by  and  Against  Executors. 

An  executor  or  administrator,  before  appointment,  often  has 
in  his  possession  property  belonging  to  the  estate,  and  in  such  a 
case  he  may  bring  any  suit  which  is  for  damages  done  to  the 
possession  merely,  such  as  trespass  or  replevin.  He  may  waive 
the  tort,  if  the  property  has  been  converted,  and  sue  in  contract, 
on  an  implied  agreement  on  the  part  of  the  wrongdoer  to  pay 
for  the  property  which  he  has  converted.    Such  actions  would  in 


544  EXECUTORS  AND  ADMINISTRATORS 

most  cases  be  a  complete  defense  of  the  possession  of  the  prop- 
erty, since  if  the  goods  belonged  to  the  estate  no  other  person 
would  have  any  better  title  than  the  executor  or  administrator; 
but  if  the  goods  were  claimed  by  the  party  against  whom  the 
action  is  brought  as  his  own,  the  executor  or  administrator  would 
fail  in  his  action,  as  he  could  not  prove  his  title  to  the  property 
by  letters,  since  these  were  not  yet  granted. 

As  to  goods  which  have  never  been  in  his  possession,  or 
which  others  claim  by  an  apparently  good  title,  the  principle  of 
the  law  that  an  executor  gets  his  title  from  the  will,  while  an 
administrator  gets  his  from  the  grant  of  letters,  results  in  the 
rule  that  while  an  administrator  cannot  begin  a  suit  for  such 
goods  till  the  grant  of  letters,  an  executor  may  begin  a  suit  before 
probate,  and  it  is  sufficient  if  he  is  prepared  with  his  letters  at 
the  trial  of  the  case.  This  holds  true  in  cases  where  he  has  never 
had  the  actual  possession  of  the  goods,  because  his  title  as  execu- 
tor draws  to  it  the  constructive  possession  of  the  goods,  which  will 
be  sufficient  to  support  the  action,  and  may  be  proved  at  the 
trial  by  the  probate  of  the  will.  At  the  present  time  any  suit  by 
an  executor  which  is  based  upon  a  title  in  him  as  such,  except  as 
above  stated  in  regard  to  goods  in  his  actual  possession,  must 
be  brought  after  the  Probate  Court  has  granted  his  letters  to  him. 

The  executor  or  administrator  may  have  certain  rights  of 
action  accrued  to  the  estate  after  the  death  of  the  testator  or 
intestate.  Thus,  if  any  property  belonging  to  the  deceased  is, 
after  the  death  of  the  owner,  taken  away  or  injured  by  a  third 
person,  the  executor  or  administrator  may  sue  for  his  injury 
in  the  proper  form  of  action  and  may  do  this  either  in  his 
individual  capacity  or  as  executor  or  administrator,  as  the  case 
may  be,  for  the  goods  are  supposed  to  be  in  his  possession, 
although  he  may  never  have  had  their  actual  possession. 

Moreover,  contracts  of  the  deceased  may  not  be  broken 
by  the  other  party  to  the  contract  until  after  the  death  of  the  con- 
tractor and,  though  no  cause  of  action  accrues  to  the  estate  until 
such  breach,  the  executor  or  administrator  may  sue  upon  it. 

Partners  on  account  of  their  peculiar  relationship  cannot 
sue  each  other  at  law  for  demands  based  upon  partnership  deal- 
ings during  the  existence  of  the  partnership.  Their  only  remedy 
is  a  bill  in  equity,  in  which  all  the  demands  and  accounts  of  the 
partnership  are  brought  together  and  settled,  and  the  balance  of 
assets  or  liabilities  apportioned  between  them.  This  rule,  which 
applies  to  all  cases  of  settling  the  affairs  of  the  partnership  when- 
ever it  is  dissolved,  applies  equally  to  the  case  when  the  partner- 


EXECUTORS  AND  ADMINISTRATORS  545 

ship  is  dissolved  by  the  death  of  one  of  the  partners.  The  man- 
ner in  which  the  personal  representative  of  the  estate  of  the 
deceased  partner  obtains  the  settlement  of  their  accounts  is  by  a 
bill  in  equity,  in  which  it  is  prayed  that  the  partnership  affairs 
be  wound  up,  and  that  there  be  an  accounting  and  payment  to 
the  plaintiff  of  whatever  may  be  due  to  the  estate.  This  account- 
ing involves  two  sets  of  accounts :  first,  accounts  of  the  partner- 
ship with  strangers,  and  second,  the  accounts  between  the  sur- 
viving partners  and  the  estate  of  the  deceased  partner.  All  the 
partnership  debts  must  be  paid  before  anything  is  due  to  the 
estate,  and,  therefore,  in  such  proceedings  a  creditor  may  inter- 
vene and  obtain  the  payment  of  his  debt.  However,  if  the  debts 
of  the  partnership  are  all  paid,  and  there  is  nothing  left  but  a 
division  of  the  assets,  and  these  assets  are  real  estate,  which 
can  be  divided  up  between  the  surviving  partner  and  the  heirs 
of  the  deceased  partner,  a  Court  of  Equity  will  not  interfere, 
and  order  a  sale  of  the  land,  in  order  to  convert  the  real  assets 
into  money,  but  will  leave  the  partners  to  divide  up  the  land. 
The  surviving  partners  must  account  for  all  the  profits  which 
have  been  made  in  the  business  since  the  death  of  the  deceased 
partner,  as  well  as  before  and  up  to  the  time  of  closing  the 
account,  for  his  capital  is  still  in  the  firm  and  is  entitled  to  its 
share  of  the  profits. 

On  the  other  hand  an  executor  or  administrator  is  bound 
by  all  the  contracts  of  the  deceased  and  may  be  compelled  to 
perform  them  or  to  respond  for  the  breach  thereof  in  damages 
unless  the  contract  is  of  such  a  nature  as  involves  the  prosecu- 
tion of  the  business  of  the  deceased,  or  is  otherwise  incompatible 
with  the  duties  of  the  executor  or  administrator  in  settling  the 
estate.  Claims  founded  on  any  obligation,  contracts,  debt,  cov- 
enant or  other  duty  of  the  testator  or  intestate,  upon  which  he 
might  have  been  sued  in  his  lifetime,  survive  his  death,  and  are 
enforceable  against  his  executor  or  administrator.  Consequently 
executors  or  administrators  are  liable  to  be  sued  for  debts  of 
every  description  due  from  the  deceased.  Statutes  have  also 
been  enacted  in  a  majority  of  the  States  making  action  for  dam- 
ages arising  out  of  tort  survive  the  death  of  the  party  origfinally 
liable,  so  that  his  executor  or  administrator  may  be  sued 
therefor. 

Another  liability  arises  in  regard  to  contracts  of  the  deceased 
as  to  conveyances  of  land.  Regarding  his  contracts  to  buy  land 
it  is  held  in  equity  that  if  the  deceased  had  entered  into  a  bind- 
ing contract  for  the  purchase  of  land  and  died  before  the  pay- 

35 


546  EXECUTORS  AND  ADMINISTRATORS 

ment  o.  the  purchase  money,  he  thereby  effected  a  conversion  of 
so  much  of  his  estate  into  realty,  and,  therefore,  the  liability 
to  pay  purchase  money  devolves  upon  the  executor  or  adminis- 
trator, although  the  land  goes  to  the  heirs.  A  second  liability 
is  that  if  the  deceased  had  entered  into  a  binding  contract  for 
the  sale  of  land,  and  died  before  executing  the  conveyance,  the 
vendee  may  compel  specific  performance  on  the  part  of  the 
executor  or  administrator. 


CONSTITUTIONAL  LAW. 

Articles  of  Confederation — Federal  Cotistitution  Analyzed — 
Powers  of  Congress,  Executive,  Judiciary — Anti-Trust 
Laws — Tariffs — A  mendments. 

THE  erudite  Story  defines  a  constitution  to  be  a  "funda-^ 
mental  law  or  basis  of  government."  More  broadly- 
speaking,  a  constitution  is  that  law  of  a  State  or  a 
combination  of  States  which  contains  the  principles  upon  which 
government  is  founded,  regulates  the  division  of  sovereign 
powers  and  directs  to  what  person  or  body  each  of  these  powers 
is  to  be  entrusted  and  the  manner  of  its  exercise.  A  con- 
stitution is  to  the  departments  of  the  government  what  a  law 
is  to  individuals,  and  it  is  not  only  a  rule  of  action  to  the 
branches  of  government,  but  it  is  that  from  which  their  exis- 
tence flows  and  by  which  the  powers  which  may  have  been 
committed  to  them  are  prescribed. 

The  most  famous  of  all  written  constitutions  is  that  of  the 
United  States,  and  derives  its  whole  authority  from  the  fact  that 
it  was  ratified  by  conventions  in  the  several  States  whose  members 
were  elected  by  the  people.  When  thus  adopted  it  became  a 
complete  obligation,  and,  therefore,  bound  the  States  and  the 
citizens  thereof.  As  our  Constitution' is  an  agreement  of  the 
people  in  their  individual  capacities,  reduced  to  writing,  establish- 
ing and  fixing  certain  principles  for  the  government  of  them- 
selves, it  is  invaluable  to  every  citizen  to  have  a  thorough  knowl- 
edge of  the  history  of  its  formation,  its  general  contents  and 
the  interpretation  placed  thereon  by  the  courts  established  by  it. 

Articles  of  Confederation. 

In  1775  a  Congress  composed  of  representatives  of  the 
American  colonies  appointed  a  committee  to  prepare  a  Declara- 
tion of  Independence  and  a  committee  to  prepare  a  plan  of  con- 
federation for  the  colonies.  Dr.  Benjamin  Franklin,  as  early  as 
August  21,  1775,  submitted  to  that  body  a  sketch  entitled  "Arti- 
cles of  Confederation  and  Perpetual  Union  of  the  Colonies," 
which  became  a  basis  for  the  articles  reported  on  July  12,  1776. 
These  articles  of  confederation  were  amended  from  time  to  time 
until  November  17,  1777,  when  Congress  determined  to  propose 

(547) 


548  CONSTITUTIONAL  LAW 

them  to  the  States.  The  last  State  to  ratify  them  was  Maryland, 
on  March  i,  1781.  In  the  language  of  Chancellor  Kent,  "the 
exclusive  cognizance  of  our  foreign  relations,  the  rights  of  war 
and  peace,  the  requisitions  of  men  and  money,  were  confided 
to  Congress,  and  the  exercise  of  them  was  binding  upon  the 
States."  But  in  imitation  of  all  former  confederacies  of  inde- 
pendent States,  either  in  ancient  Greece  or  modern  Europe,  the 
articles  of  confederation  carried  the  decrees  of  the  Federal  Coun- 
cil to  the  States  in  their  sovereign  or  collective  capacity.  This 
was  the  great  fundamental  defect  in  the  confederation  of  1781 ; 
it  led  to  its  eventual  overthrow,  and  it  has  proved  pernicious 
or  destructive  to  all  other  federal  governments  which  adopted 
the  principle. 

Disobedience  to  the  laws  of  the  Union  must  either  be  sub- 
mitted to  by  the  Government,  to  its  own  disgrace,  or  those  laws 
musts  be  enforced  by  arms.  The  mild  influence  of  the  civil 
magistrate,  however  strongly  it  may  be  felt  and  obeyed  by  pri- 
vate individuals,  will  not  be  heeded  by  an  organized  community, 
conscious  of  its  power  and  swayed  by  its  passions.  The  his- 
tory of  the  Federal  Government  of  Greece,  Germany,  Switzer- 
land and  Holland  afford  melancholy  examples  of  destructive 
civil  war  springing  from  the  disobedience  of  the  separate  mem- 
bers. The  weakness  of  the  Confederation  and  the  need  of  the 
substitution  of  a  more  stable  system  was  pointed  out  by  Alex- 
ander Hamilton  in  a  letter  to  James  Duane,  September  3,  1780. 

The  Constitution. 

In  May,  1785,  Congress  failed  to  act  on  the  report  of  a 
committee  recommending  an  alteration  of  the  first  paragraph 
of  the  ninth  of  the  Articles  of  Confederation,  so  as  to  enlarge 
the  powers  of  Congress,  especially  as  to  trade;  and  the  Legis- 
lature of  Virginia,  on  January  21,  1786,  appointed  commissioners 
to  meet  such  commissioners  as  might  be  appointed  by  other 
States  to  examine  the  relative  situation  and  trade  of  such  States, 
to  consider  how  far  a  uniform  system  in  their  commercial  regu- 
lation may  be  necessary  to  their  common  interest  and  their  per- 
manent harmony;  and  to  report  to  the  several  States  such  an 
act  relative  to  this  great  object  as,  when  unanimously  ratified 
by  them,  will  enable  the  United  States  in  Congress  effectually  to 
provide  for  the  same.  The  Commissioners  of  only  four  States 
besides  Virginia,  to  wit,  Delaware,  Pennsylvania,  New  Jersey  and 
New  York,  met  in  Annapolis  on  the  first  Monday  in  September, 
1786.    A  report  drawn  by  Alexander  Hamilton  was  agreed  upon, 


CONSTITUTIONAL  LAW  549 

recommending  that  commissioners  from  all  the  States  meet  on 
the  second  Monday  of  the  following  May. 

As  a  result  a  convention  of  delegates  from  all  the  original 
thirteen  States,  except  Rhode  Island,  met  at  Philadelphia,  May 
14,  1787.  On  September  17  a  form  of  Constitution  was  unani- 
mously agreed  upon,  and  on  September  28  submitted  to  the  Con- 
gress of  the  Confederation.  Conformable  to  recommendations 
as  to  its  adoption,  it  was  sent  by  the  Congress  to  the  State  Legis- 
latures in  order  to  be  ratified  or  rejected  by  conventions  of  dele- 
gates chosen  in  each  State  by  the  people.  The  several  State 
conventions  ratified  the  Constitution  as  follows:  Delaware,  De- 
cember 7,  1787;  Pennsylvania,  December  12,  1787;  New  Jersey, 
December  18,  1787 ;  Georgia,  January  22,  1788;  Connecticut,  Janu- 
ary 9,  1788;  Massachusetts,  February  6,  1788;  Maryland,  April 
28,  1788;  South  Carolina,  May  23,  1788;  New  Hampshire,  June 
21,  1788;  Virginia,  June  26,  1788;  New  York,  July  26,  1788; 
North  Carolina,  November  21,  1788;  Rhode  Island,  May  2^,  1790. 
Article  VII  of  the  Constitution  provides  that  "the  ratification  of 
the  conventions  of  nine  States  shall  be  sufficient  for  the  estab- 
lishment of  this  Constitution  between  the  States  so  ratifying  the 
same."  The  ratification  by  the  ninth  State  was  read  to  Congress 
on  July  2,  1788,  and  on  September  13  Congress  passed  the  fol- 
lowing: "Resolved,  That  the  first  Wednesday  in  January  next 
be  the  day  for  appointing  electors  in  the  several  States  which 
before  the  said  day  shall  have  ratified  the  said  Constitution; 
that  the  first  Wednesday  in  February  next  be  the  day  for  the 
electors  to  assemble  in  their  respective  States  and  vote  for  a 
President,  and  the  first  Wednesday  in  March  next  be  the  time 
and  the  present  seat  of  Congress  (New  York)  the  place  for 
commencing  proceedings  under  the  said  Constitution."  Proceed- 
ings having  taken  place  conformably  to  this  resolution,  Washing- 
ton took  the  oath  of  office  on  April  30,  and  Congress  met  on 
March  4.  Owing  to  the  want  of  a  quorum  the  House  did  not 
organize  until  April  i,  nor  the  Senate  until  April  6.  The  Su- 
preme Court  has  held  that  the  operation  of  the  Constitution  "did 
not  commence  before  the  first  Wednesday  in  March,  1789."  In 
view  of  the  compact  between  the  States,  it  is  not  possible  for  a 
single  State,  without  violating  this  agreement,  to  withdraw  from 
the  Union  or  to  deprive  itself  of  its  rights  as  one  of  the  United 
States. 

Having  briefly  outlined  the  history  leading  up  to  the  adop- 
tion of  the  Constitution,  before  taking  up  its  specific  provisions, 
let  us  inquire  first  into  its  general  effect  and  application. 


550  CONSTITUTIONAL  LAW      . 

When  the  Constitution  was  ratified  the  thirteen  original 
States  were  existing  governments,  and  those  States  which  have 
been  admitted  into  the  Union  since  1789  have,  as  regards  the 
United  States  and  the  other  States,  the  same  rights,  powers  and 
obHgations  as  the  thirteen  original  States.  The  result  is,  and  it 
is  extremely  important  to  bear  in  mind,  that  in  so  far  as  the 
States  are  not  controlled  by  the  express  or  implied  restrictions 
contained  in  the  Constitution  of  the  United  States  they  may 
severally  exercise  all  the  powers  of  independent  government. 
The  authority  of  the  Constitution  is,  of  course,  sovereign,  but  so 
far  as  their  freedom  of  action  is  not  controlled  by  that  instru- 
ment, the  States  united  thereunder  are  independent  of  one 
another. 

In  its  relation  to  the  several  States  and  the  citizens  thereof, 
the  United  States  Government  is  one  of  delegated  and  limited 
powers.  The  Constitution  emphatically  states  in  the  language 
of  its  well-known  preamble  that  it  is  established  by  the  people, 
not  the  States,  which  rendered  the  States  dependent  and  sub- 
ordinate for  all  specific  purposes  for  which  it  was  adopted. 

Three  Governmental  Branches. 

There  is  created  by  the  Constitution  a  government  divided 
into  three  departments,  legislative,  executive  and  judicial.  The 
duty  being  vested  in  the  executive  department  to  administer  the 
laws  of  Congress,  and  the  primary  duty  of  the  judicial  depart- 
ment being  to  expound  the  Constitution  and  the  laws  in  their 
application  to  subject  matters  of  judicial  cognizance,  either  civil 
or  criminal,  it  is  manifest  that  the  powers  conferred  upon  the 
Government  of  the  United  States  by  the  Constitution  are  prin- 
cipally powers  of  legislation.  These  powers  are  either  expressed 
or  implied,  the  former  being  such  as  are  specifically  stated,  where- 
as the  latter  are  those  which  authorize  the  use  of  appropriate 
means  which  are  consistent  with  the  letter  and  spirit  of  the  Con- 
stitution for  the  accomplishment  of  legitimate  ends  which  are  not 
prohibited  and  which  are  within  the  scope  of  the  Constitution. 
Certain  express  exceptions  are  made  to  the  powers  granted  by 
the  Constitution  to  the  United  States,  contained  in  the  ninth  sec- 
tion of  Article  I  and  in  the  first  eleven  of  the  amendments. 

Section  2  of  Article  VI  provides  that  "This  Constitution 
and  the  laws  of  the  L^nited  States  which  shall  be  made  in  pur- 
suance thereof  and  all  treaties  made  or  which  shall  be  made 
under  the  authority  of  the  United  States  shall  be  the  supreme 


CONSTITUTIONAL  LAW  551 

law  of  the  land;  and  the  Judges  in  every  State  shall  be  bound 
thereby,  anything  in  the  Constitution  or  laws  of  any  State  to 
the  contrary  notwithstanding."  By  virtue  of  this  article,  the 
Government  of  the  United  States  is,  in  the  language  of  that 
immortal  expounder  of  the  Constitution,  Chief  Justice  Marshall, 
"though  limited  in  its  powers,  supreme  within  its  sphere  of  action, 
and  to  the  extent  and  in  the  exercise  of  the  powers  delegated  to 
it,  it  is  a  sovereignty." 

The  Constitution  imposes  certain  restraints  upon  the  several 
States,  the  same  being  either  expressed  or  implied.  The  ex- 
press restraints  are,  of  course,  those  specifically  set  forth  in  the. 
Constitution.  Implied  restraints  are  those  which  result  from  the 
express  grant  by  the  Constitution  of  certain  powers  whose  nature 
or  the  terms  of  whose  grant  require  that  they  should  be  exclu- 
sively exercised  by  the  United  States.  Included  among  the  ex- 
press restraints  are  those  which  affect  the  relations  of  the  sev- 
eral States  to  other  States,  foreign  and  domestic;  and,  second, 
those  which  have  reference  to  the  relations  between  the  States 
and  their  citizens,  and  which  limit  the  exercise  by  these  States 
of  their  power  of  legislation.  The  prohibition  against  making 
treaties,  alliances,  confederations,  agreements  or  compacts  with 
another  State,  or  with  a  foreign  Power  is  an  illustration  of  an 
express  restraint  of  the  first  class.  Forbidding  a  State  to  grant 
titles  of  nobility,  to  coin  money,  to  impose  duties  of  tonnage  and 
duties  on  imports  or  exports;  the  prohibition  against  depriving 
any  person  of  life,  liberty  or  property  without  due  process  of 
law,  illustrate  express  restraints  of  the  second  class. 

The  implied  restraints  limit  the  action  of  the  States  with 
regard  to  taxation,  the  regulation  of  commerce  and  the  personal 
and  property  rights  of  their  citizens,  and  of  the  citizens  of  other 
States. 

The  territory  owned  at  the  time  the  Constitution  was  adopted 
and  that  acquired  subsequently  thereto  are  subject  to  its  terms 
and  provisions  the  same  as  any  State,  by  virtue  of  the  clause 
providing  that  "Congress  shall  have  power  to  dispose  of  and 
make  all  needful  rules  and  regulations  respecting  the  territory 
and  other  property  belonging  to  the  United  States."  In  con- 
sequence of  this  authority  the  Supreme  Court  decided  in  the 
famous  Insular  cases  that  Congress  could,  after  the  acquisition 
of  Porto  Rico  as  territory  of  the  United  States,  impose  duties 
upon  importations  into  ports  of  the  United  States  from  Porto 
Rico,  and  into  ports  of  Porto  Rico  from  the  United  States  and 
foreign  countries. 


552  CONSTITUTIONAL  LAW 

Federal  Constitution  Analyzed. 

Having  indicated  the  general  nature  and  application  of  the 
Constitution  of  the  United  States,  together  with  the  leading 
principles  adopted  for  its  construction,  we  are  now  m  a  better 
position  to  discuss  its  separate  provisions  more  intelligently. 

There  are  three  departments  of  government  provided  for 
by  the  Constitution,  to  wit,  Legislative,  Executive  and  Judicial. 

Article  I  vests  the  legislative  power  in  a  Congress  consist- 
ing of  a  Senate  and  House  of  Representatives.  The  system  of 
apportionment  of  representatives  in  Congress,  their  qualifications, 
the  method  of  organizing  both  branches,  together  with  their 
general  powers,  set  forth  in  the  first  seven  sections  of  Article  I, 
are  well  known  and  require  no  special  comment.  All  bills  for 
raising  revenue  must  originate  in  the  House  of  Representatives, 
but  the  Senate  may  or  may  not  concur  with  amendments  as  on 
other  bills.  Every  bill  passing  the  House  of  Representatives  and 
the  Senate  shall,  before  it  becomes  a  law,  be  presented  to  the 
President  of  the  United  States,  who  must  sign  same  if  meeting 
his  approval ;  if  not,  it  must  be  returned  to  that  House  in  which 
it  originated,  where  the  objections  are  entered  on  the  journal, 
and  a  reconsideration  taken.  If  upon  reconsideration  two-thirds 
of  that  House  shall  agree  to  pass  the  bill  it  must  be  sent,  to- 
gether with  the  objections,  to  the  other  House,  by  which  it 
must  likewise  be  reconsidered  and  approved  by  two-thirds  of  that 
House,  when  it  shall  become  a  law.  If  a  President  fails  to  re- 
turn a  bill  within  ten  days  (Sundays  excepted)  after  it  shall 
have  been  presented  to  him,  the  same  shall  be  a  law  the  same 
as  if  he  signed  it,  "unless  Congress  by  their  adjournment  prevent 
its  return,  in  which  case  it  shall  not  become  a  law."  Not  only 
every  bill,  but  every  order,  resolution  or  vote  to  which  the  con- 
currence of  the  Senate  and  House  of  Representatives  may  be 
necessary  (except  on  a  question  of  adjournment),  must  be  pre- 
sented to  the  President  of  the  United  States,  and  before  the  same 
becomes  eflfective  it  must  be  approved  by  him,  or,  being  disap- 
proved, must  be  re-passed  by  two-thirds  of  the  Senate  and  House 
the  same  as  in  the  case  of  a  bill. 

Powers  of  Congress. 

The  eighth  section  of  Article  I,  particularly  enumerating  the 
powers  of  Congress,  is  one  of  such  transcendent  importance  as 
to  warrant  a  very  careful  inquiry.  Under  this  section  Congress 
is  empowered: 


CONSTITUTIONAL  LAW  553 

1.  To  lay  and  collect  taxes,  duties,  imposts  and  excises,  to 
pay  the  debts  and  provide  for  the  common  defense  and  general 
welfare  of  the  United  States.  But  all  duties,  imposts  and 
excises  shall  be  uniform  throughout  the  United  States. 

2.  To  borrow  money  on  the  credit  of  the  United  States. 

3.  To  regulate  commerce  with  foreign  nations  and  among 
the  several  States,  and  with  the  Indian  tribes. 

4.  To  establish  a  uniform  rule  of  naturalization  and  imi- 
form  laws  on  the  subject  of  bankruptcy,  throughout  the  United 
States. 

5.  To  coin  money,  regulate  the  value  thereof,  and  of  for- 
eign coin,  and  fix  the  standard  of  weights  and  measures. 

6.  To  provide  for  the  punishment  of  counterfeiting  the 
securities  and  current  coin  of  the  United  States. 

7.  To  establish  postoffices  and  post-roads. 

8.  To  promote  the  progress  of  science  and  useful  arts  by 
securing  for  limited  terms  to  authors  and  inventors  the  exclusive 
right  to  their  respective  writings  and  discoveries. 

9.  To  constitute  tribunals  inferior  to  the  Supreme  CoiiTt; 
to  define  and  punish  piracies  and  felonies  committed  on  the  high 
seas,  and  offenses  against  the  law  of  nations. 

10.  To  declare  war,  grant  letters  of  marque  and  reprisal, 
and  make  rules  concerning  captures  on  land  and  water. 

11.  To  raise  and  support  armies;  but  no  appropriation  of 
money  to  that  use  shall  be  for  a  longer  term  than  two  years. 

12.  To  provide  and  maintain  a  navy. 

13.  To  make  rules  for  the  government  and  regfulation  of 
the  land  and  naval  forces. 

14.  To  provide  for  calling  forth  the  militia  to  execute  the 
laws  of  the  nation,  suppress  insurrections  and  repel  invasions. 

15.  To  provide  for  organizing,  arming  and  disciplining  the 
militia,  and  for  governing  such  part  of  them  as  may  be  employed 
in  the  service  of  the  United  States,  reserving  to  the  States  re- 
spectively the  appointment  of  officers  and  the  authority  of 
training  the  militia  according  to  the  discipline  described  by 
Congress. 

16.  To  exercise  exclusive  legislation  in  all  cases  what- 
soever, over  such  district  not  exceeding  ten  miles  square,  as 
may,  by  cession  of  particular  States,  and  the  acceptance  of 
Congress,  become  the  seat  of  government  of  the  United  States; 
and  to  exercise  like  authority  over  all  places  purchased  by  the 
consent  of  the  Legislature  of  the  State  in  which  the  same  shall 


554  CONSTITUTIONAL  LAW 

be  for  the  erection  of  forts,  magazines,  arsenals,  dockyards  and 
other  needful  buildings. 

17.  To  make  all  laws  which  shall  be  necessary  and  proper 
for  carrying  into  execution  the  foregoing  powers,  and  all  other 
powers  vested  by  the  Constitution  in  the  Government  of  the 
United  States,  or  in  any  department  or  officer  thereof. 

The  Taxing  Power. 

The  most  necessary  power  granted  to  Congress  is  the  first 
mentioned — i.  e.,  "to  lay  and  collect  taxes,"  etc.  Taxation  is 
the  compulsory  exaction  by  a  government,  in  the  exercise  of 
its  sovereignty,  of  a  payment  or  surrender  of  property  by  any 
person,  natural  or  corporate,  who  or  whose  property  so  taxed  is 
subject  to  the  sovereign  power  of  that  government.  The  power 
to  levy  and  collect  taxes,  duties,  imposts  and  excises  is  co- 
extensive with  the  territory  of  the  United  States.  A  public  use  or 
purpose  is  essential  to  the  idea  of  tax,  and  a  tax  for  a  private 
purpose  is  unconstitutional,  and  Congress  is  not  empowered  to 
tax  for  those  purposes  which  are  within  the  exclusive  province 
of  the  State.  Every  possible  exaction  of  money  or  property  by 
a  government  from  those  who  are  subject  to  its  jurisdiction  is  not 
a  tax;  thus  a  duty  of  so  much  per  passenger  imposed  by  the 
United  States  in  the  exercise  of  the  power  to  regulate  commerce, 
on  owners  of  vessels  bringing  passengers  from  foreign  ports 
into  ports  of  the  United  States,  in  order  to  raise  a  fund  to  miti- 
gate the  evils  incident  to  immigration,  is  "not  a  tax  or  duty 
within  the  meaning  of  the  Constitution."  There  is  one  execu- 
tion and  two  qualifications  to  the  power  of  Congress  to  levy  and 
collect  taxes.  Congress  cannot  tax  exports,  and  it  must  impose 
direct  taxes  by  the  rule  of  apportionment,  and  indirect  taxes  by 
the  rule  of  uniformity.  Thus  limited,  the  taxing  power  reaches 
every  subject  and  may  be  exercised  at  discretion. 

The  requirement  of  uniformity  means  that  there  must  be 
geographical  uniformity,  or,  in  other  words,  that  "wherever  a 
subject  is  taxed  anywhere,  the  same  must  be  taxed  everywhere, 
throughout  the  United  States  and  at  the  same  rate,"  and  taxation 
is  uniform  when  it  operates  with  the  same  eflfect  in  all  places 
where  the  subject  of  taxation  is  found,  though  that  subject  be 
not  equally  distributed  throughout  the  United  States. 

It  is  well  settled  that  the  United  States  cannot  tax  the  agen- 
cies of  a  State,  as,  for  example,  the  salary  of  a  judicial  officer 
of  a  State,  nor  the  revenue  of  a  municipal  corporation  derived 
from  its  loan  of  capital  to  a  railway. 

Every  individual  State  may,  so  far  as  it  is  not  restrained  by 


CONSTITUTIONAL  LAW  555 

the  Constitution,  tax  all  persons,  natural  or  corporate,  and  all 
property,  real  or  personal,  within  its  territory  and  subject  to  its 
sovereignty,  and  may  regulate  the  manner  of  levying  and  col- 
lecting its  taxes.  It  has  been  held  that  under  the  general  rule 
which  permits  a  government  to  tax  all  persons  and  property 
within  its  jurisdiction,  the  States  may  impose  a  duty  on  the 
devolution  of  title  to  real  estate  from  their  citizens  to  alien  non- 
residents; they  may  tax  descents  and  inheritances  and  they  may 
classify  and  vary  the  rate  of  taxation  with  reference  to  lineal  and 
collateral  relationship ;  a  State  may  tax  mortgages  of  lands  within 
their  limits.  A  State  cannot  tax  the  operations  of  banks  incor- 
porated by  the  Government  of  the  United  States  as  fiscal  agen- 
cies. In  the  case  of  national  banks.  State  taxation  is  by  the 
forty-first  section  of  the  act  of  June  3,  1864,  permitted  as  to  the 
shares  in  any  bank  when  "included  in  the  valuation  of  the  per- 
sonal property  of  the  owner  or  holder  of  such  shares  in  assessing 
taxes  imposed  by  authority  of  the  State." 

Congress  has  not  an  unlimited  power  of  taxation,  but  it  is 
limited  to  specific  objects — the  payment  of  the  public  debts  and 
providing  for  the  common  defense  and  general  welfare.  A  tax, 
therefore,  laid  by  Congress  for  neither  of  these  objects  would 
be  unconstitutional  as  an  excess  of  its  legislative  authority. 

Having  ascertained  that  the  power  of  taxation,  though 
general  as  to  the  subjects  to  which  it  may  be  applied  is  yet 
restrictive  as  to  the  purposes  for  which  it  may  be  exercised,  it 
next  becomes  matter  of  inquiry,  what  were  the  reasons  for 
which  this  power  was  given  and  what  were  the  objections  to 
which  it  was  deemed  liable?  It  was  admitted  by  all  that  the 
power  of  taxation  should  be  vested  in  the  National  Government 
Without  such  a  power  it  would  not  be  possible  to  provide  for 
the  support  ef  the  national  forces  by  land  or  sea  or  the  national 
civil  list  or  the  ordinarj'  charges  and  expenses  of  the  Government. 
For  these  purposes,  at  least,  there  must  be  a  constant  and  regular 
supply  revenue.  If  there  should  be  a  deficiency  one  of  two  evils 
must  inevitably  ensue,  either  the  people  must  be  subjected  to 
continual  arbitrary  plunder  or  the  Government  must  sink  into  a 
fatal  atrophy.  The  former  is  the  fate  of  Turkey  under  its 
sovereigns,  the  latter  threatened  to  be  the  fate  of  America  under 
the  Confederation.  The  power  of  taxation  must  be  co-extensive 
with  the  powers,  wants  and  duties  of  the  National  Government. 

The  only  inquiry  properly  remaining  is  whether  the 
resources  of  taxation  should  be  specified  and  limited  or  whether 
the  power  in  this  respect  should  be  general,  leaving  a  full  choice 
to  the  national  legislature.     Every  Government  ought  to  con- 


556  CONSTITUTIONAL  LAW 

tain  within  itself  every  power  requisite  to  the  full  accomplish- 
ment of  the  objects  committed  to  its  care,  and  the  complete 
execution  of  the  trusts  for  which  it  is  responsible,  free  from 
every  other  control,  but  a  regard  to  the  public  good  and  to  the 
security  of  the  people.  In  other  words,  every  power  ought  to  be 
proportionate  to  its  objects.  As  stated  by  Chief  Justice  Story 
in  his  Commentaries:  "Revenue  is  the  essential  engine  by  which 
the  means  of  answering  the  national  exigencies  must  be  pro- 
cured; and  therefore  the  power  of  procuring  it  must  necessarily 
be  comprehended  in  that  of  providing  for  those  exigencies." 
Theory  as  well  as  practice  conspire  to  prove  that  the  power  of 
procuring  revenue  is  unavailing  and  a  mere  mockery  when 
exercised  over  States  in  their  collective  capacities.  If,  therefore, 
the  Federal  Government  was  to  be  of  any  efficiency  and  a  bond 
of  union  it  ought  to  be  invested  with  an  unqualified  power  of 
taxation  for  all  national  purposes. 

Taxes  are  either  direct  or  indirect,  and  it  is  important  to 
clearly  understand  the  difference.  The  Constitution,  by  giving  the 
power  to  lay  and  collect  taxes  in  general  terms,  doubtless  meant 
to  include  all  sorts  of  taxes,  whether  direct  or  indirect.  Under 
the  former  denomination  are  included  taxes  on  land  or  real 
property,  and  under  the  latter  taxes  on  articles  of  consumption. 

The  fourth  clause  of  the  ninth  section  of  the  first  article 
declares  that  "no  capitation  or  other  direct  tax  shall  be  laid  unless 
in  proportion  to  the  census  or  enumeration  hereinbefore  directed 
to  be  taken."  Ordinarily  all  taxes  paid  primarily  by  persons 
who  can  shift  the  burden  upon  someone  else,  or  who  are  under 
no  legal  compulsion  to  pay 'them,  are  considered  indirect  taxes, 
and  taxes  imposed  upon  individuals  in  their  personal  capacity  or 
upon  individuals  in  respect  of  their  ownership  of  their  property 
are  direct  taxes.  The  Supreme  Court  in  one  of  its  earliest  de- 
cisions ruled  that  a  tax  on  carriages  for  the  conveyance  of  per- 
sons was  an  excise  and  therefore  an  indirect  tax.  In  the  argu- 
ment Alexander  Hamilton  said:  "The  following  are  presumed 
to  be  the  only  direct  taxes:  Capitation,  or  poll  taxes;  taxes  on 
land  and  buildings ;  general  assessments,  whether  on  the  whole 
property  of  individuals  or  on  their  whole  real  or  personal  prop- 
erty.   All  else  must  of  necessity  be  considered  indirect  taxes." 

Income  Tax. 

Certain  statesmen  have  from  time  to  time  advocated  the  im- 
position of  an  income  tax.  But  it  is  the  consensus  of  economic 
authorities  that  the  income  tax  laws,  even  when  wisely  framed, 


CONSTITUTIONAL  LAW  557 

should  be  reserved  only  for  great  public  emergencies,  for  the 
reason  that  they  are  necessarily  unequal  in  operation  in  that  they 
fall  most  heavily  on  those  who  conscientiously  make  full  returns ; 
and  that  when  resorted  to  they  should  tax  impartially  the  surplus 
income  of  every  citizen  over  and  above  that  minimum  which 
suffices  for  the  necessities  of  the  life  of  an  individual,  and  that 
incomes  received  from  salaries  or  from  professional  compensa- 
tion, if  taxed  at  all,  should,  by  reason  of  their  terminable  char- 
acter be  less  heavily  taxed  than  incomes  derived  from  invested 
funds.  Under  the  income  tax  legislation  of  1861  and  its  sup- 
plements, when  the  amount  exempted  was  $600,  the  tax  was  paid 
by  only  460,000  persons,  and  when  the  amount  exempted  was 
$1,000,  the  tax  was  paid  by  less  than  250,000  persons.  The 
population  and  wealth  of  the  country  had  largely  increased  in 
the  years  preceding  1894,  but  it  is  certain  by  reason  of  the  larger 
amount  exempted  from  taxation  under  the  act  of  that  year,  the 
burden  of  the  tax  imposed  by  that  law  would  have  been  borne 
by  a  relatively  small  number  of  persons,  certainly  not  more  than 
two  per  cent,  of  the  population  of  the  country. 

The  income  tax  law  of  1894  was  a  very  objectionable  speci- 
men of  class  legislation.  Not  content  with  exempting  the  mini- 
mum amount  which  suffices  for  the  necessities  of  the  life  of  an 
individual,  and  which  in  1894  certainly  did  not  exceed  $600,  it 
enlarged  the  exemption  to  $4,000.  It  made  no  distinction  be- 
tween income  received  from  salaries  or  as  professional  compensa- 
tion and  income  derived  from  invested  securities.  The  con- 
stitutionality of  that  act  came  before  the  Supreme  Court  of  the 
United  States  in  1895.  It  was  at  first  decided  that  so  much  of 
the  act  as  provided  for  levying  taxes  upon  incomes  derived  from 
real  estate  was  invalid,  because  such  taxes  are  in  legal  effect  taxes 
upon  real  estate  and  are  as  such  direct  taxes  which  can  only  be 
imposed  according  to  the  rule  of  apportionment,  and  that  so  much 
of  that  act  as  taxed  income  derived  from  investments  in  State, 
county  and  municipal  securities  was  invalid,  because  they  were 
taxes  on  the  States  and  on  their  instrumentalities  of  government. 
Upon  a  re-hearing  of  the  argument  on  this  question  the  Supreme 
Court  decided  in  addition  to  the  points  decided  at  the  first  hear- 
ing that  a  tax  on  an  individual  in  respect  of  his  income  derived 
from  real  or  personal  property  is  a  direct  tax,  and  therefore  can 
be  laid  only  under  the  rule  of  apportionment. 


558  -  CONSTITUTIONAL  LAW 

Other  Provisions. 

In  order  to  prevent  the  necessity  of  recurring  again  to  the 
subject  of  taxation  it  seems  desirable  to  bring  together  in  this  con- 
nection all  the  remaining  provisions  of  the  Constitution  on  this 
subject,  though  they  are  differently  arranged  in  that  instrument. 
And  it  might  be  here  remarked  that  it  is  impracticable  for  the 
purposes  of  this  discussion  to  dilate  at  length  upon  the  separate 
provisions  of  the  Constitution,  our  object  being  to  elaborate 
merely  upon  the  more  important  provisions. 

The  Constitution  provides  that  "No  tax  or  duty  shall  be  laid 
on  articles  exported  from  any  State."  No  preference  shall  be 
given  by  any  regulation  of  commerce  or  revenue  to  the  ports  of 
one  State  over  those  of  another;  nor  shall  vessels  bound  to  or 
from  one  State  be  obliged  to  enter,  clear  or  pay  duties  in  another. 

The  object  of  these  provisions  is  to  prevent  any  possibility 
of  applying  the  power  to  lay  taxes  or  regulate  commerce  inju- 
riously to  the  interests  of  any  one  State  so  as  to  favor  or  aid  an- 
other. If  Congress  were  allowed  to  lay  a  duty  on  exports  from 
any  one  State  it  might  unreasonably  injure  or  even  destroy  the 
staple  productions  or  common  articles  of  that  State.  The  in- 
equality of  such  a  tax  would  be  extreme.  In  some  of  the  States 
the  whole  of  their  means  result  from  agricultural  exports.  In 
others  a  great  proportion  is  derived  from  other  sources.  The 
power  to  intermeddle  with  the  subject  of  exports  is  wholly  taken 
away.  On  the  other  hand,  preferences  might  be  given  to  the 
ports  of  one  State  by  regulations  either  of  commerce  or  revenue 
which  might  confer  on  them  local  facilities  or  privileges  in  re- 
gard to  commerce  or  revenue.  And  such  preferences  might  be 
equally  fatal  if  indirectly  given  under  the  milder  form  of  re- 
quiring an  entry,  clearance  or  payment  of  duties  in  the  ports  of 
any  State  other  than  the  ports  of  the  State  to  or  from  which  the 
vessel  was  bound.  The  last  clause,  therefore,  does  not  prohibit 
Congress  from  requiring  an  entry  or  clearance  or  payment  of 
duties  at  the  custom  house  on  importations  in  any  port  of  a 
State  to  or  from  which  the  vessel  is  bound,  but  it  cuts  off  the 
right  to  require  such  acts  to  be  done  in  other  States  to  which  the 
vessel  is  not  bound. 

Restraints. 

The  succeeding  clause  of  the  Constitution  contains  a  pro- 
hibition on  the  States  for  the  like  objects  and  purposes.  "No 
State  shall,  without  the  consent  of  Congress,  lay  any  imposts  or 


CONSTITUTIONAL  LAW  559 

duties  on  imports  or  exports  except  what  may  be  absolutely  neces- 
sary for  executing  its  inspection  laws ;  and  the  net  produce  of  all 
duties  and  imposts  laid  by  any  State  on  imports  and  exports 
shall  be  for  the  use  of  the  Treasury  of  the  United  States;  and  all 
such  laws  shall  be  subject  to  the  revision  and  control  of  Con- 
gress. No  State  shall  without  the  consent  of  Congress  levy  any 
tonnage  duty."  If  there  is  wisdom  and  sound  policy  in  restrain- 
ing the  United  States  from  exercising  the  power  of  taxation  un- 
equally in  the  States,  there  is  at  least  equal  wisdom  and  policy  in 
restraining  the  States  themselves  from  the  exercise  of  the  same 
power  injuriously  to  the  interests  of  each  other.  The  power  to 
enforce  their  inspection  laws  is  still  retained  by  the  States,  sub- 
ject to  the  revision  and  control  of  Congress,  so  that  sufficient 
provision  is  made  for  the  convenient  arrangement  of  their  domes- 
tic and  internal  trade,  whenever  it  is  not  injurious  to  the  general 
interests. 

Power  to  Regulate  Commerce. 

Of  equal  importance  to  the  power  of  taxation  is  the  power 
vested  in  Congress  to  regulate  commerce  with  foreign  nations, 
and  among  the  several  States  and  with  the  Indian  tribes.  This 
is  perhaps  the  most  elastic  clause  in  the  whole  Constitution.  The 
only  commerce  the  framers  of  the  Constitution  knew  was  the 
foreign  and  coastwise  commerce  that  was  carried  in  ships.  They 
little  thought  that  the  time  would  ever  come  when  the  commerce 
so  carried  would  be  far  exceeded  in  amount  and  in  value  by  the 
internal  commerce  of  the  country,  yet  that  time  has  come.  In 
the  years  that  have  passed  since  the  adoption  of  the  Constitution 
the  country  has  made  great  strides  and  has  increased  from  less 
than  three  million  to  more  than  ninety  million  people.  Discover- 
ies in  science  and  inventions  in  the  arts  have  developed  new  sub- 
jects of  trade  and  have  created  new  agencies  of  commerce.  Sail- 
ing vessels  have  given  way  to  steamships,  and  railways  have 
superseded  turnpike  roads,  Conestoga  wagons  and  canals  for 
the  transportation  of  passengers  and  freight.  Telegraphs  and 
telephones  have  annihilated  distance,  and  in  view  of  these  g^eat 
changes  in  conditions  it  is  more  than  ever  important  that  the 
constitutional  limits  upon  the  regulation  of  commerce  should  be 
clearly  comprehended,  and  that  the  line  which  separates  the 
provinces  of  Federal  and  of  State  authority  over  this  subject  of 
national  interest  should  be  so  far  as  possible  accurately  defined. 

The  want  of  the  power  to  regulate  commerce  was  one  of  the 


56o  CONSTITUTIONAL  LAW 

leading  defects  of  the  confederation,  and  probably,  as  much  as 
any  one  cause,  conduced  to  the  establishment  of  the  Constitution. 

The  term  "commerce"  as  defined  by  Chief  Justice  Marshall 
means  not  only  traffic,  but  also  commercial  intercourse  in  all  its 
branches,  including  transportation  by  sea  and  on  land,  importa- 
tion and  exportation  and  all  that  is  necessarily  incident  thereto. 
The  power  conferred  is  to  regulate  or  prescribe  the  rule  by 
which  commerce  is  to  be  governed.  Commerce  undoubtedly 
is  traffic;  but  it  is  also  something  more.  It  is  intercourse.  It 
describes  the  commercial  intercourse  between  nations  and  parts 
of  nations  in  all  its  branches.  Commerce  includes  navigation. 
The  power  over  navigation  was  one  of  the  primary  objects  for 
which  the  people  of  America  adopted  their  government. 

It  should  be  borne  in  mind,  however,  that  ever)rthing  that 
is  connected  with  commerce  is  not  necessarily  commerce.  Bills 
of  exchange  may  be  given  in  payment  for  goods  to  be  imported 
and  yet  such  bills  are  mere  personal  obligations  and  are  not  in 
themselves  subjects  of  commerce.  It  has  also  been  held  that 
money  assessed  for  State  taxation  is  not  by  a  subsequent  invest- 
ment in  a  subject  of  commerce  relieved  from  such  taxation.  So 
also  a  contract  of  insurance  is  not  "an  instrumentality  of  com- 
merce," but  a  mere  incident  of  commercial  intercourse.  A  State 
may,  therefore,  prohibit  foreign  insurance  companies  and  their 
agents  from  effecting  within  its  territory  contracts  of  insurance, 
save  upon  such  conditions  as  the  State  may  prescribe,  but  a 
State  cannot  prohibit  its  citizens  from  effecting  in  another  State 
a  contract  of  insurance.  Insurance,  commercial  paper  and  trade- 
marks are  certainly  as  nearly  related  to  and  as  truly  incidents 
of  commerce  as  a  telegraphic  inquiry  as  to  the  state  of  the  mar- 
ket or  a  telegraphic  order  for  the  forwarding  of  goods,  though, 
unlike  the  bill  of  lading,  they  do  not  represent  the  goods.  Lot- 
tery tickets  are  subjects  of  traffic  and  the  carriage  of  such  tickets 
by  independent  carriers  from  one  State  to  another  is  interstate 
commerce.  The  Supreme  Court  has  also  ruled  that  the  transfer 
of  shares  of  railway  companies  is  interstate  commerce  when 
such  shares  are  transferred  for  the  purpose  of  vesting  in  a  hold- 
ing company  a  majority  of  the  shares  of  two  competing  railways 
engaged  in  interstate  traffic. 

In  regard  to  commerce  with  foreign  nations,  it  is  universally 
admitted  that  the  words  comprehend  every  species  of  commercial 
intercourse.  No  sort  of  trade  or  intercourse  can  be  carried  on 
between  this  country  and  another  to  which  it  does  not  extend. 
This  phase  of  commerce  comes  more  properly  under  international 


CONSTITUTIONAL  LAW  561 

law,  and  we  will  therefore  confine  our  inquiry  to  commerce 
among  the  States.  A  very  material  object  of  this  power  is  the 
relief  of  the  States  which  import  and  export  through  other  States 
from  the  levy  of  improper  contributions  on  them  by  the  latter. 
If  each  State  were  at  liberty  to  regulate  the  trade  between  State 
and  State  it  is  easy  to  foresee  that  ways  would  be  found  out  to 
load  the  articles  of  import  and  export  during  their  passage! 
through  the  jurisdiction  with  duties  which  should  fall  on  the 
makers  of  the  latter  and  the  consumers  of  the  former. 

It  was  pointed  out  previously  that  the  power  of  Congress 
to  regulate  commerce  is  exclusive,  at  least  in  all  cases 
where  the  subjects  over  which  it  is  exercised  are,  in  their  nature, 
national  or  admit  of  one  uniform  system  or  plan  of  regulation. 
This  power,  like  all  others  vested  in  Congress,  is  complete  in 
itself,  may  be  exercised  to  its  utmost  extent,  and  acknowledges 
no  limitations  other  than  are  prescribed  in  the  Constitution. 

Over  the  internal  commerce  of  a  State  Congress  has  no 
power  of  regulation,  nor  any  direct  control.  This  power  be- 
longs exclusively  to  the  States.  In  view  of  this  fact  the  United 
States  cannot  license  the  sale  of  liquor  in  violation  of  the  laws 
of  any  State. 

Navigable  Waters. 

The  question  has  been  frequently  raised:  How  far  any 
State  possesses  the  power  to  authorize  an  obstruction  of  any 
navigable  stream  or  creek  in  which  the  tide  ebbs  and  flows, 
within  its  territorial  limits,  as  by  authorizing  the  erection  of  a 
dam  across  it?  The  Supreme  Court  of  the  United  States  has 
decided  that  the  power  of  Congress  to  regulate  commerce  in- 
cluded the  power  to  determine  what  should  or  should  not  be 
deemed,  in  judgment  of  law,  an  obstruction  to  navigation.  The 
power  to  regulate  commerce  comprehends  the  control  for  that 
purpose,  and  to  the  extent  necessary,  of  all  the  navigable  waters 
of  the  United  States  which  are  accessible  from  a  State  other 
than  those  in  which  they  lie.  For  this  purpose  they  are  the 
public  property  of  the  nation  and  subject  to  all  the  requisite 
legislation  by  Congress. 

A  State  may,  however,  rightfully  regulate  the  exercise  of 
the  right  of  fishing  in  its  navigable  waters,  and  enforce  by  judi- 
cial proceedings  a  forfeiture  of  vessels  whose  navigators  fail 
to  conform  to  the  regulations  so  prescribed,  and  a  license  to 
navigate  granted  by  the  United  States  confers  no  immtmity  from 

36 


562  CONSTITUTIONAL  LAW 

the  operation  of  such  regulations.  The  power  granted  to  the 
United  States  of  jurisdiction  in  admiralty  does  not  carry  with  it  a 
cession  of  navigable  waters,  or  of  general  jurisdiction  over  them. 
Consequently  a  murder  committed  on  a  vessel  of  the  navy  of  the 
United  States  while  at  anchor  in  navigable  waters  within  the 
jurisdiction  of  a  State  does  not  come  within  the  jurisdiction  of 
a  United  States  Court. 

The  ferries  across  a  river  within  the  limits  of  one  State  are 
not  within  the  power  of  Congress  over  commerce,  and  conse- 
quently the  acts  requiring  boats  engaged  in  the  coasting  trade  to 
be  registered  and  licensed  do  not  apply  thereto.  A  tax  on  rail- 
road companies  for  every  passenger  carried  out  of  the  State  by 
them  is  not  void  as  a  regulation  of  commerce  in  the  absence  of 
any  conflicting  regulation  by  Congress. 

A  review  of  the  cases  will  show  that  of  late  the  Supreme 
Court  has  recognized  a  clear  distinction  between  those  cases  in 
which  State  regulations  are  admissible  and  those  in  which 
they  are  not,  which  in  view  of  its  importance  it  is  well  to  state 
in  the  language  of  the  Supreme  Court:  "Whatever  subjects  of 
the  power  over  commerce  are  in  their  character  national,  or 
admit  of  one  uniform  system  or  plan  of  regulation,  are  to  be 
regarded  as  within  the  exclusive  control  of  Congress,  but  other 
subjects,  which  are  to  be  regulated  in  view  of  local  circum- 
stances and  facts,  and  which  can  usually  be  best  regulated  by 
State  legislation,  are,  until  Congfress  acts  in  the  matter,  subject 
to  such  legislation." 

Tariffs. 

The  question  arises  whether  Congress  has  the  constitutional 
authority  to  apply  the  power  to  regulate  commerce  for  the  pur- 
pose of  encouraging  and  protecting  domestic  manufactures.  It 
is  not  denied  that  Congress  may,  incidentally,  in  its  arrangements 
for  revenue,  or  to  countervail  foreign  restrictions,  encourage  the 
growth  of  domestic  manufactures.  It  is  insisted,  however,  that 
under  the  color  of  regulating  commerce  Congress  has  no  right 
permanently  to  prohibit  any  importations,  or  to  tax  any  un- 
reasonably for  the  purpose  of  securing  the  home  market  to  the 
domestic  manufacturer,  as  they  thereby  destroy  the  commerce 
entrusted  to  them  to  regulate,  and  foster  an  interest  with  which 
they  have  no  constitutional  power  to  interfere.  This  opinion 
constitutes  the  leading  doctrine  of  several  of  the  Southern 
States.     On  the  other  hand,  it  is  as  earnestly  maintained  that 


CONSTITUTIONAL  LAW  563 

Congress  docs  possess  the  constitutional  power  to  encourage  and 
protect  manufactures  by  appropriate  regulations  of  commerce. 
It,  therefore,  becomes  indispensable  to  review  the  grounds  upon 
which  the  doctrine  of  each  dominant  party  is  maintained  and  to 
sift  them  to  the  bottom,  since  it  cannot  be  disguised  that  the 
controversy  over  the  tariff  agitates  the  whole  country  and 
marks  the  divisions  of  party  by  the  strongest  lines,  geographical 
and  political.  This  inquiry  is  of  particular  importance  in  view 
of  the  present  demand  for  tariff  revision. 

The  reasoning  by  which  the  doctrine  is  maintained,  that  the 
power  to  regulate  commerce  cannot  be  constitutionally  applied 
as  a  means  directly  to  encourage  domestic  manufactures,  is  to  the 
following  effect :  The  Constitution  is  one  of  limited  and  enume- 
rated f)owcrs;  and  none  of  them  can  be  rightfully  exercised  be- 
yond the  scope  of  the  objects  specified  in  those  powers.  It  is  not 
disputed  that  when  the  power  is  given  all  the  appropriate  means 
to  carry  it  into  effect  are  included.  Neither  is  it  disputed  that 
the  laying  of  duties  on  imported  goods  is  nor  may  be  an  appro- 
priate means  of  regulating  commerce.  But  the  question  is  a  very 
different  one  whether,  under  pretense  of  an  exercise  of  the  power 
to  regulate  commerce,  Congress  may  in  fact  impose  duties  for 
objects  wholly  distinct  from  commerce.  The  question  comes  to 
this — whether  a  power  exclusively  for  the  regulation  of  com- 
merce is  a  power  for  the  regulation  of  manufactures?  The 
statement  of  such  a  question  would  seem  to  invqlve  its  own 
answer.  Can  a  power  granted  for  one  purpose  be  transferred 
to  another?  If  it  can,  where  is  the  limitation  in  the  Constitution? 
Are  not  commerce  and  manufactures  as  distinct  as  commerce 
and  agriculture?  If  they  are,  how  can  a  power  to  regelate  one 
arise  from  a  power  to  regulate  the  other?  It  is  true  that  com- 
merce and  manufactures  may  be  intimately  connected  with  each 
other.  A  regulation  of  one  may  injuriously  or  beneficially  affect 
the  other.  But  that  is  not  the  point  in  controversy.  It  is 
whether  Congress  has  a  right  to  regulate  that  which  is  not  com- 
mitted to  it,  under  a  power  which  is  committed  to  it,  simply 
because  there  may  be  an  intimate  connection  between  the  powers. 
If  this  were  admitted,  the  enumeration  of  the  powers  of  Con- 
gress in  the  Constitution  would  be  wholly  unnecessary.  The 
wages  of  labor,  the  profits  of  stock,  the  rents  of  land  and  the 
performance  of  contracts  would  all  be  within  the  scope  of  the 
power  to  regulate  commerce,  for  all  bear  an  intimate  relation  to 
commerce.  When  duties  are  laid  on  certain  classes  of  imported 
goods,  not  for  purposes  of  revenue,  but  of  retaliation  and  restric- 


564  CONSTITUTIONAL  LAW 

tion  to  countervail  foreign  restrictions,  they  are  strictly  within 
the  scope  of  the  power,  as  a  regulation  of  commerce.  But  when 
laid  to  encourage  manufactures  they  have  nothing  to  do  with 
it.  The  power  to  regulate  manufactures  is  no  more  confided  to 
Congress  than  the  power  to  interfere  with  the  systems  of  educa- 
tion, the  poor  laws  or  the  road  laws  of  the  State. 

Having  given  in  substance  of  the  argument  of  those  who 
deny  the  constitutional  right  of  Congress  to  impose  tariffs  on 
imported  goods  for  the  purpose  of  protecting  home  industries, 
we  will  turn  briefly  to  the  argument  of  those  upholding  this  right, 
which  is  to  the  following  effect:  The  power  to  regulate  com- 
merce being  in  its  terms  unlimited,  includes  all  means  appropriate 
to  the  end,  and  all  means  that  have  been  usually  exerted 
under  the  power.  No  one  can  doubt  or  deny  that  a  power  to 
regulate  trade  involves  a  power  to  tax  it.  The  American  colonies 
wholly  denied  the  authority  of  the  British  Parliament  to  tax 
them,  except  as  a  regulation  of  commerce,  but  they  admitted  this 
exercise  of  power  as  legitimate  and  unquestionable.  The  dis- 
tinction was  with  difficulty  maintained  in  practice  between  laws 
for  the  regulation  of  commerce  by  way  of  taxation  and  laws 
which  were  made  for  mere  monopoly  or  restriction,  when  they 
incidentally  produced  revenue.  And  it  is  certain  that  the  main 
object  of  parliamentary  regulations  of  trade  with  the  colonies  was 
the  encouragement  of  manufactures  in  Great  Britain.  In  com- 
mercial and  manufacturing  nations  the  power  to  regulate  com- 
merce has  embraced  practically  the  encouragement  of  manu- 
factures. When  the  Constitution  was  framed,  no  one  ever 
imagined  that  the  power  of  protection  of  manufactures  was 
to  be  taken  away  from  all  the  States,  and  yet  not  delegated  to  the 
Union.  The  terms  of  the  Constitution  it  is  thought  are  suf- 
ficiently large  to  embrace  the  power ;  the  practice  of  other  nations 
and  especially  of  Great  Britain  and  the  American  colonies  has 
been  to  use  it  in  this  manner ;  and  this  exercise  of  it  was  one  of 
the  very  grounds  upon  which  the  establishment  of  the  Con- 
stitution was  urged  and  vindicated.  If  Congress  does  not  possess 
the  power  to  encourage  domestic  manufactures  by  regulations 
of  commerce,  the  power  is  annihilated  for  the  whole  nation. 
Here,  then,  is  a  case  of  laying  duties,  an  ordinary  means  used  in 
executing  the  power  to  regulate  commerce ;  how  can  it  be  deemed 
unconstitutional  ?  If  it  be  said  that  the  motive  is  not  to  collect 
revenue,  what  has  that  to  do  with  the  power?  In  other  words, 
-  when  an  act  is  constitutional  as  an  exercise  of  a  power,  can  it  be 
imconstitutional  from  the  motives  with  which  it  is  passed?    li  it 


CONSTITUTIONAL  LAW  565 

can,  then  the  constitutionality  of  an  act  must  depend  not  upon 
the  power,  but  upon  the  motives  of  the  Legislature,  and  it  would 
hence  follow,  as  a  consequence,  that  the  same  act  passed  by  one 
Legislature  will  be  constitutional  and  by  another  unconstitutional. 
The  constitutionality  of  an  act  would  thus  depend  upon  processes 
utterly  vag^e  and  incomprehensible.  The  manner  of  applying  a 
power  may  be  an  abuse  of  it,  but  this  does  not  prove  that  it  is 
unconstitutional.  At  any  rate,  the  above  sets  forth  the  arguments 
of  both  dominant  parties  upon  the  constitutionality  of  acts  of 
Congress  imposing  tariff  duties  on  imported  goods. 

Section  9  of  Article  i  of  the  Constitution  expressly  for- 
bids Congress  to  tax  exports ;  but  this  prohibition  applies  to  for- 
eign and  does  not  apply  to  interstate  commerce,  nor  to  goods 
imported  from  the  United  States  into  Porto  Rico.  Internal 
revenue  stamps  required  to  be  placed  by  the  manufacturer  upon 
articles  for  exportation  do  not  fall  within  the  prohibition. 

The  Constitution  forbids  the  States  to  impose  any  duty  on 
tonnage  (Section  10  of  Article  i).  The  word  "tonnage"  as 
applied  to  American  shipping  means  their  entire  internal  capacity, 
expressed  in  tons  of  100  cubical  feet  each,  as  estimated  and  ascer- 
tained by  those  rules  of  computation  which  are  prescribed  by  acts 
of  Congress.  Port  dues  being  charges  imposed  on  vessels  as 
instruments  of  commerce  and  payable  by  all  vessels  entering, 
remaining  in  or  leaving  a  port  are  regulations  of  commerce  and 
as  such  cannot  be  imposed  by  State  authority.  A  State  may 
regulate  pilotage  in  the  absence  of  legislation  by  Congress.  Goods 
shipped  in  one  State  destined  to  points  in  another  State  are  sub- 
ject to  regulation  by  Congress,  whether  or  not  such  goods  ever 
in  reality  leave  the  borders  of  the  5tate  of  shipment.  As  soon 
as  goods  are  placed  in  transit  which  are  destined  to  points  in 
another  State,  they  become  interstate  commerce  and  subject  to 
regulation  by  Congress. 

The  United  States  may  in  the  discretion  of  Congress 
authorize  or  prohibit  improvements  in  the  waterways  used  in 
foreign  or  domestic  commerce.  It  may  change  the  established 
channels  of  rivers  and  dredge  harbors,  and  the  action  of  Con- 
gress is  exclusive  of  any  right  to  the  contrary  asserted  under 
State  authority. 

A  State  may  tax  goods  brought  in  from  another  State, 
though  in  the  hands  of  the  consignee  and  in  the  original  pack- 
ages, but  a  State  cannot  by  taxation  discriminate  against  either 
the  natural  products  of  or  the  goods  manufactured  in  other 
States,  whether  by  requiring  of  every  non-resident  trader  as  a 


566  CONSTITUTIONAL  LAW 

prerequisite  to  his  sales  of  other  than  agricultural  products 
of  or  articles  manufactured  in  the  State  a  higher  license  fee 
than  is  required  of  traders  in  domestic  goods.  A  State  which 
taxes  the  traffic  in  any  intoxicating  liquors  at  any  place  other 
than  the  place  of  manufacture  does  not  impose  a  discriminating 
tax  upon  a  dealer  in  liquors  manufactured  in  another  State. 
Upon  the  same  principle  it  has  been  held  that  a  State  may 
prohibit  the  sale  of  oleomargarine  in  imitation  of  butter,  and 
that  the  act  of  Congress,  of  August  2,  1886,  defining  butter 
and  imposing  a  tax  upon  oleomargarine  does  not  authorize  trans- 
portation and  sale  in  violation  of  such  a  statute.  It  has  likewise 
been  held  that  a  State  may  prohibit  the  sale  of  cigarettes 
brought  in  from  another  State,  when  the  size  of  the  original 
package  is  such  as  to  indicate  an  intention  to  sell  at  retail  that 
which  the  State  in  its  exercise  of  the  police  power  has  forbidden 
to  be  sold. 

The  construction  of  railway  systems  has  required  the  courts 
to  consider  in  many  cases  the  respective  powers  of  the  United 
States  and  of  the  States  in  regard  to  transportation.  Under  the 
later  cases  a  State  may,  in  the  exercise  of  its  police  power, 
regulate  transportation  so  far  as  may  be  necessary  for  the  pro- 
tection, safety  and  comfort  of  its  citizens,  but  it  cannot  by  such 
regulations  unnecessarily  impede  or  obstruct  interstate  com- 
merce, the  power  to  regulate  which  is  vested  in  Congress  by  the 
clause  under  consideration. 

A  State  may  fix  and  enforce  maximum  rates  of  fare  and 
freight  for  interstate  transportation  on  all  railways  within  the 
State,  even  though  the  people  in  other  States  may  be  in- 
directly affected  thereby.  A  State  may  appoint  a  commission 
to  revise  railway  tariflFs,  but  same  must  not  interfere  with  inter- 
state commerce.  A  State  may  also  prohibit  the  running  of 
freight  trains  on  Sunday  on  any  railway  within  the  State.  A 
State  may  authorize  its  railways  commission  to  require  a  railway 
to  erect  and  maintain  stations  at  designated  points.  These  rights 
are  based  on  the  ground  that  it  is  proper  for  a  State  in  the 
exercise  of  its  police  power  to  make  such  regulations  as  are 
of  a  purely  local  nature  and  appertain  to  the  internal  welfare  of 
the  State,  the  restriction  being  that  such  laws  enacted  by  a  State 
must  not  assume  to  interfere  with  interstate  commerce.  Other- 
wise one  State  could  legislate  injuriously  to  anothet,  to  pre- 
vent which  the  power  over  interstate  commerce  is  vested 
exclusively  in  Congress. 

The  anti-trust  laws  passed  by  Congress  by  virtue  of  the 


CONSTITUTIONAL  LAW  567 

power  to  regulate  commerce,  which  are  of  such  vital  importance 
at  the  present  time,  will  be  next  discussed. 

"Trusts." 

In  view  of  the  growing  sentiment  in  favor  of  the  proper 
regulation  of  Trusts  and  monopolies  by  the  Government,  let  us 
inquire  into  the  constitutional  right  of  Congress  to  legislate  with 
this  end  in  view. 

A  Trust  has  been  defined  as  "a  combination  of  corporations 
and  properties  made,  in  some  cases,  by  the  merger  and  con- 
solidation of  existing  associations  and  in  other  cases  by  the 
organization  of  corporations  to  acquire  and  to  hold  the  prop- 
erties to  be  consolidated,  or  the  controlling  interest  in  the  shares 
of  the  corporations  to  be  combined."  In  other  words,  "Trusts" 
may  be  regarded  as  combinations  of  individuals  or  corporations 
fortned  to  obtain  capital  by  the  sale  of  stocks  and  bonds,  to  save 
the  waste  of  competition,  to  secure  in  production,  transpor-* 
tation  and  distribution  the  maximum  of  efficiency  at  the 
minimum  of  cost;  to  expand  trade  by  reducing  the  price  to  the 
consumer,  and  by  economical  operation  to  increase  the  net  profit 
to  the  producer. 

There  are  four  classes  of  people  to  be  considered  in  any 
legislative  regulation  of  Trusts  by  the  United  States.  First — 
the  investors  in  the  bonds  and  shares  issued  by  the  so-called 
Trust.  Second — the  business  rivals  or  competitors  of  such 
Trusts.  Complaint  is  made  on  their  behalf  that  the  Trusts  in 
order  to  destroy  competition  discriminate  in  their  prices.  Third 
— the  consumers  of  the  goods  manufactured  or  sold  by  the 
corporations  or  Trusts.  So  far  as  this  class  is  concerned,  it  is 
clear  that  no  act  of  legislation  can  effectively  prescribe  the 
price  at  which  the  products  of  the  corporation  are  to  be  sold, 
for  the  simple  reason  that  market  prices  have  always  been  and 
always  will  be  regulated  by  the  operation  of  the  law  of  supply  and 
demand.  It  is  a  well-recognized  truth  that  successful  commerce 
buys  in  the  dearest  markets.  The  fourth  class  to  be  considered 
in  regulating  Trusts  are  those  who  or  whose  goods  are  carried  by 
common  carriers. 

It  is  contended  that  Trusts  have  a  tendency  to  monopoly. 
But  intelligent  managers  of  a  successful  business  do  not  advance 
prices  to  the  point  at  which  destructive  competition  will  be 
invited.  When  by  reason  of  an  apparent  permanence  of  demand 
and  a  present  inadequacy  of  the  means  of  supply  prices  rise 


568  CONSTITUTIONAL  LAW 

to  a  level  that  gives  a  reasonable  assurance  of  profit  to  producers, 
the  surplus  capital  of  the  world  can  always  be  relied  on  to 
augment  the  means  of  supply. 

Legislation  enacted  for  the  purpose  of  regulating  trade  is 
of  ancient  origin.  In  the  Middle  Ages  the  theory  prevailed  that 
it  was  the  duty  of  the  Government  to  fix  the  hours  of  labor,  rates 
of  wages,  time  and  places  of  sale,  etc.  The  policy  of  England 
directed  to  the  restraint  of  colonial  trade  caused  the  Revo- 
lutionary War,  after  which  there  was  a  natural  jealousy  of 
governmental  power  and  a  determination  to  guard  individual 
liberty  against  oppression.  Consequently,  when  the  Constitution 
of  the  United  States  was  framed  a  government  was  founded  not 
only  upon  the  supremacy  of  the  Federal  Government  in  the 
exercise  of  the  powers  granted  to  it,  but  likewise  upon  the 
independence   of   the   States   and   the    freedom   of   the   citizen. 

As  voiced  in  the  very  recent  opinion  of  Judge  Gray  in 
construing  the  Hepburn  act,  it  is  to  the  States,  and  not  to  the 
United  States,  that  we  ought  to  look  for  the  legislative  and 
administrative  regulation  of  the  industrial  organizations  of  the 
present  and  the  future,  which  power  of  the  State  is  ample. 
It  is  well  known  that  a  State  may  create  corporations,  with 
or  without  conditions,  and  it  may  authorize  a  corporation  to  do 
any  business  which  an  individual  may  lawfully  do,  and  it  may 
furthermore  forbid  a  foreign  corporation  to  do  business  within 
its  territory.  The  United  States  cannot  even  grant  a  charter  of 
incorporation,  except  as  a  means  incidental  to  the  exercise  by  the 
United  States  of  a  power  of  government.  The  United  States 
assumes  to  control  the  operations  of  a  corporation  chartered  by 
a  State  only  under  the  power  of  regulating  foreign  and  inter- 
state commerce.  But,  as  has  been  forcibly  stated  by  our  courts, 
the  scope  of  the  commerce  clause  of  the  Constitution  cannot  be 
enlarged  because  of  present  views  of  public  interest.  Any 
legislation  which  conflicts  with  the  American  doctrine  that  all 
men  are  equal  before  the  law,  and  that  equality  of  rights  implies 
equality  of  obligations,  and  that  subject  rights  of  property  and 
freedom  of  contract  to  administrative  control  is  dangerous  in  a 
republic  governed  by  universal  suffrage. 

Anti-Trust  Legislation. 

The  first  "anti-trust  act"  passed  by  Congress  was  drafted 
by  the  late  Senator  Hoar,  of  Massachusetts,  and  was  passed 
because  of  public  clamor  as  to  "the  grave  evil  of  the  accumu- 


CONSTITUTIONAL  LAW  569 

lation  in  this  country  of  vast  fortunes  in  single  hands  or  of 
vast  properties  in  the  hands  of  great  corporations." 

The  act  of  July  2,  1890,  declares  illegal  every  contract,  com- 
bination in  the  form  of  trust  or  otherwise,  or  conspiracy  in 
restraint  of  trade  or  commerce  among  the  several  States  or 
Territories,  or  with  foreign  nations;  and  every  monopoly  or 
attempt  to  monopolize  any  part  of  such  trade  or  commerce 
subjects  to  forfeiture,  seizure  and  condemnation  any  property 
owned  under  any  contract,  or  by  any  combination,  or  person, 
pursuant  to  any  conspiracy.  This  act  also  gives  a  right  of 
action  for  injury  to  business  or  property  by  reason  of  anything 
declared  unlawful  by  the  act,  with  threefold  damages,  costs  of 
suit  and  attorney's  fee,  and  further  requires  the  several  district 
attorneys,  under  the  direction  of  the  Attorney  General,  to 
institute  proceedings  in  equity  to  prevent  and  restrain  such 
violations. 

Under  the  terms  of  the  act  of  February  14,  1903,  the 
Bureau  of  Corporations  in  the  Department  of  Commerce  and 
Labor  was  created.  This  act  authorizes  the  Commissioner  of 
this  bureau  to  make,  under  the  direction  and  control  of  the  Secre- 
tary of  Commerce  and  Labor,  "diligent  investigation  into  the 
organization,  conduct  and  management  of  the  business  of  any 
corporation,  joint-stock  company,  or  corporate  combination 
engaged  in  commerce  among  the  several  States  and  with  foreign 
nations,  excepting  common  carriers  subject  to  the  Interstate 
Commerce  act,  and  to  gather  such  information  and  data  as 
will  enable  the  President  of  the  United  States  to  make  recom- 
mendations to  Congress  for  legislation  for  the  regulation  of 
such  commerce,  and  to  report  such  data  to  the  President  from 
time  to  time  as  he  shall  require ;  and  the  information  so  obtained, 
or  as  much  thereof  as  the  President  shall  direct,  shall  be  made 
public.  Congress  further  made  it  the  duty  of  this  bureau  to 
gather,  compile,  publish  and  supply  useful  information  concern- 
ing corporations  doing  business  within  the  limits  of  the  United 
States  as  shall  engage  in  interstate  commerce,  or  in  com- 
merce between  the  United  States  and  any  foreigfn  country, 
including  corporations  engaged  in  insurance,  and  to  attend  to 
such  other  duties  as  may  be  hereafter  provided  by  law. 

The  term  "contracts  in  restraint  of  trade"  in  the  act  making 
same  unlawful  includes  without  regard  to  their  reasonableness 
or  unreasonableness  all  kinds  of  those  contracts  which,  in  fact, 
restrain  or  may  restrain  trade.  Under  the  conditions  of  trade  in 
the  time  of  the  old  year  books  any  restraint  of  trade  was  an 


570  CONSTITUTIONAL  LAW 

unlawful  restraint,  but  under  modern  conditions  the  test  of 
invalidity  is  the  unreasonableness  of  the  restraint,  for  an  agree- 
ment would  not  necessarily  be  in  restraint  of  trade,  although  its 
direct  effect  might  be  to  restrain  to  some  extent  the  trade  which 
had  been  done. 

Labor  Unions. 

A  combination  of  labor  (labor  unions)  is  from  a  logical 
standpoint  as  clearly  subject  to  the  statute  as  any  combination 
of  capital.  The  labor  unions  reasonably  restrain  trade  when 
they  combine  to  sell  a  certain  minimum  of  labor  for  not  less 
than  a  certain  price,  but  they  unreasonably  restrain  trade  when, 
in  order  to  effect  their  purpose,  they  use  threats  and  force  to 
prevent  employers  from  securing  labor  not  provided  by  mem- 
bers of  the  union.  The  courts  have  taken  the  view  that  in  the 
absence  of  an  express  and  unfulfilled  contract  of  service,  it  is 
the  legal  right  of  every  man  to  refuse  to  work,  but  it  is  neither 
the  legal  nor  the  moral  right  of  any  man  to  hinder  other  men 
from  working. 

The  act  of  July  2,  1890,  popularly  known  as  the  Sherman 
Anti-Trust  law,  has  been  contrued  to  forbid  an  agreement  by 
several  corporations  organized  under  the  laws  of  different  States 
and  engaged  in  the  manufacture,  interstate  transportation  and 
sale  of  a  commodity,  to  abstain  from  competition  as  between 
themselves  within  a  designated  territory,  including  more  than 
one  State.  In  the  famous  Northern  Securities  Company  case, 
it  was  held  to  forbid  a  combination  by  several  persons  whereby 
a  holding  corporation  is  organized  under  the  laws  of  a  State 
to  acquire  and  hold  the  majorities  of  the  shares  of  two  rail- 
ways organized  under  the  laws  of  other  States  and  theretofore 
competing  in  interstate  traffic.  This  important  statute  is  to  be 
construed,  in  its  application,  according  to  the  "rules  of  reason"; 
the  combination  in  restraint  of  trade,  in  order  to  come  within  the 
inhibition  of  the  act,  must  be  unreasonable. 

In  view  of  their  importance,  especial  stress  has  been  laid 
upon  the  power  of  Congress  to  impose  taxes  and  to  regulate 
commerce.  Various  other  powers  are  vested  in  the  legislative 
branch  of  our  Government,  concerning  which  it  is  important 
to  briefly  comment. 

The  next  clause  of  Article  I,  Section  8,  of  the  Constitution 
of  the  United  States  vests  in  Congress  the  power  to  establish  a 
uniform  rule  of  naturalization  and  uniform  laws  on  the  sub- 


CONSTITUTIONAL  LAW  571 

ject  of  bankruptcies  throughout  the  United  States.  It  is  of 
the  deepest  interest  to  the  whole  Union  to  know  who  are 
entitled  to  enjoy  the  rights  of  citizens  in  each  State,  since  they 
thereby,  in  effect,  become  entitled  to  the  rights  of  citizens  in  all 
the  States.  It  follows  from  the  very  nature  of  the  power  that 
to  be  useful  it  must  be  exclusive.  It  has  been  held  that  a 
naturalization  law  which  by  its  terms  is  made  applicable  alike  to 
all  the  States,  without  distinction  or  discrimination,  is  not  uncon- 
stitutional merely  because  its  operations  may  be  wholly  different 
in  one  State  from  another. 

Bankruptcy  Laws. 

As  stated  in  The  Federalist,  "the  power  of  establishing 
uniform  laws  of  bankruptcy  is  so  intimately  connected  with 
the  regfulation  of  commerce  and  will  prevent  so  many  frauds, 
where  the  parties  or  their  property  may  lie  or  be  removed  into 
different  States,  that  the  expediency  of  it  seems  not  likely  to  be 
drawn  in  question."  One  of  the  first  duties  of  legislation,  while 
it  provides  amply  for  the  sacred  obligation  of  contracts  and  the 
remedies  to  enforce  them,  is  to  relieve  the  unfortunate  and 
meritorious  debtor  from  a  slavery  of  mind  and  body  which  cuts 
him  off  from  a  fair  enjoyment  of  the  common  benefits  of  society, 
and  robs  his  family  of  the  fruits  of  his  labor  and  the  benefits 
of  his  paternal  superintendence.  A  national  government  which 
did  not  possess  this  power  of  legislation  would  be  little  worthy 
of  the  exalted  functions  of  guarding  the  happiness  and  support- 
ing the  rights  of  a  free  people.  The  law  at  present  in  force 
upon  the  subject  of  bankruptcy  is  the  act  of  July  28,  1898,  and 
supplements,  which  has  heretofore  been  considered.  It  should  be 
borne  in  mind  that  the  States  have  authority  to  pass  bankrupt 
laws  provided  they  do  not  impair  the  obligation  of  contracts,  and 
provided  there  be  no  act  of  Congress  in  force  to  establish  a  uni- 
form system  of  bankruptcy  conflicting  with  such  laws.  But  an  act 
of  a  State  Legislature  which  discharges  a  debtor  from  all  liability 
for  debts  contracted  previously  to  his  discharge,  on  his  sur- 
rendering his  property  for  the  benefit  of  his  creditors,  is  invalid, 
so  far  as  it  attempts  to  discharge  the  contract. 

The  next  clause  of  the  Constitution  vests  in  Congress  the 
power  "to  coin  money,  regulate  the  value  thereof  and  of  foreign 
coin,  and  fix  the  standard  of  weights  and  measures,"  anent 
which  a  few  remarks  may  profitably  be  made. 

The  grounds  upon  which  the  general  power  to  coin  money 


572  CONSTITUTIONAL  LAW 

and  regulate  the  value  of  foreign  and  domestic  coin  is  granted 
to  the  National  Government  cannot  require  much  illustration  in 
order  to  vindicate  it.  Money  is  the  universal  medium  or  common 
standard  by  a  comparison  with  which  the  value  of  all  mer- 
chandise may  be  ascertained  and  the  power  to  coin  it  is  one  of 
the  ordinary  prerogatives  of  sovereignty. 

The  Legal  Tender  Acts. 

After  the  breaking  out  of  the  Civil  War  in  1861,  it  was 
deemed  necessary  by  Congress,  in  order  to  supply  the  means  of 
carrying  on  the  war,  to  issue  a  large  amount  of  treasury  notes, 
and  to  make  them  a  legal  tender  in  payment  of  private  debts, 
and  also  of  all  public  dues  except  duties  on  imports  and  interest 
on  the  public  debt.  These  notes  thereupon  to  a  large  extent 
became  the  circulating  medium  of  the  country,  and  gold  and 
silver  ceased  to  be  used  in  ordinary  traffic  except  on  the  Pacific 
slope.  The  constitutional  validity  of  the  Legal  Tender  acts  of 
Congress  was  strongly  contested,  especially  in  their  application  to 
pre-existing  debts,  but  it  was  generally  sustained  by  the  State 
courts.  The  question  did  not  come  before  the  Supreme  Court 
of  the  United  States  for  decision  until  the  case  of  Hepburn  vs. 
Griswold,  decided  in  December,  1869.  In  that  case  a  majority 
of  the  Court  held  that  the  acts  were  valid  so  far  as  they  applied 
to  debts  contracted  subsequently  to  their  passage,  but  that  they 
were,  as  to  debts  contracted  before  their  passage,  unwarranted 
by  the  Constitution.  A  year  later,  however,  this  decision  was 
overruled,  and  the  acts  were  sustained,  as  well  as  to  their 
application  to  pre-existing  debts  as  to  those  subsequently  con- 
tracted. In  the  Legal  Tender  cases  the  power  of  Congress  to 
make  paper  money  a  legal  tender  for  times  of  peace  as  well  as 
war  was  upheld. 

The  powers  vested  in  Congress  by  the  succeeding  clauses 
of  Article  I,  Section  8,  of  the  Federal  Constitution  are  well 
understood  and  require  but  passing  comment.  Besides  those 
specifically  mentioned.  Congress  is  empowered  "to  make  all 
laws  which  shall  be  necessary  and  proper  for  carrying  into 
execution  the  foregoing  powers,  and  all  other  powers  vested 
by  this  Constitution  in  the  Government  of  the  United  States, 
or  in  any  department,  or  officer  thereof."  This  does  not  mean 
absolutely  necessary,  nor  does  it  imply  the  use  of  only  the  most 
direct  and  simple  means  calculated  to  produce  the  end.  But  it 
requires  that  the  means  used  in  the  exercise  of  an  expressed 


CONSTITUTIONAL  LAW  573 

power  should  be  appropriate  to  the  end.  Therefore,  Congress 
has  power  to  charter  the  Bank  of  the  United  States,  as  a  neces- 
sary and  useful  instrument  of  the  fiscal  operations  of  the  Govern- 
ment. So  also  it  has  power  under  this  general  authority  to 
provide  for  the  punishment  of  any  offenses  which  interfere  with, 
obstruct  or  prevent  commerce  and  navigation  with  foreign 
States,  and  among  the  several  States,  although  such  offenses  may 
be  done  on  land.  Few  powers  of  the  Government  were  at  the 
time  of  the  adoption  of  the  Constitution  assailed  with  more 
severe  invective  and  more  declamatory  intemperance  than  the 
power  under  discussion.  It  cannot  be  denied  that  the  powers 
given  by  the  Constitution  imply  the  ordinary  means  of  execution, 
for  without  the  substance  of  the  power  the  Constitution  would 
be  a  dead  letter.  However,  this  power  was  inserted  as  a  pre- 
caution and  to  emphasize  the  fact  that  Congress  shall  have  all 
the  incidental  and  instrumental  powers  necessary  and  proper 
to  carry  into  execution  all  the  expressed  powers.  Upon  the 
whole,  as  stated  by  Chief  Justice  Story,  "The  result  of  the  most 
careful  examination  of  this  clause  is  that  if  it  does  not  enlarge,  it 
cannot  be  construed  to  restrain  the  powers  of  Congress,  or  to 
impair  the  right  of  the  Legislature  to  exercise  its  best  judgment 
in  the  selection  of  measures  to  carry  into  execution  the  con- 
stitutional powers  of  the  National  Government." 

Another  question  which  has  for  a  long  time  agitated  the 
public  councils  of  the  nation,  is  as  to  the  authority  of  Congress 
to  make  roads,  canals  and  other  internal  improvements.  Con- 
cerning the  right  to  appropriate  money  to  internal  improvements, 
the  subject  has  already  been  reviewed  in  considering  the  power 
to  lay  and  collect  taxes.  The  only  limitation  is  that  prescribed 
by  the  terms  of  the  Constitution — to  wit,  that  the  objects  shall 
be  the  common  defense  or  the  general  welfare  of  the  Union. 
The  true  test  is  whether  the  object  be  of  a  local  character  and 
local  use,  in  which  case  Congress  cannot  constitutionally  appro- 
priate money  for  the  object,  or  whether  it  be  of  general  benefit 
to  the  States,  in  which  event  it  matters  not  whether  the  improve- 
ment be  in  one  State  in  point  of  locality  or  in  several.  In  fact, 
Congress  may  directly  undertake  and  carry  on  a  system  of 
internal  improvements  for  the  general  welfare,  whenever  such 
improvements  fall  within  the  scope  of  any  of  the  enumerated 
powers.  Thus,  Congress  may  authorize  the  construction  of  light- 
houses, piers,  buoys  and  beacons  for  the  purposes  of  navigation. 
As  incidental  to  the  power  to  lay  and  collect  taxes,  Congress 
may  authorize   the  purchase   and   building  of  custom   houses, 


574  CONSTITUTIONAL  LAW 

revenue  cutters  and  public  warehouses.  As  incidental  to  the 
power  to  make  war,  Congress  may  erect  forts,  arsenals,  dock 
yards,  navy  yards  and  magazines. 

A  very  practical  question  has  been  raised:  How  far  Con- 
gress can  make  a  law  giving  the  United  States  a  preference  and 
priority  of  payment  of  their  debts,  in  cases  of  the  death,  in- 
solvency or  bankruptcy  of  their  debtors,  out  of  their  estates. 
The  Supreme  Court  has  decided  upon  deliberate  argument  that 
Congress  possessed  such  a  constitutional  power.  It  is  a  neces- 
sary and  proper  power  to  carry  into  effect  the  other  powers  of 
the  Government.  In  the  language  of  the  court,  "The  Govern- 
ment is  to  pay  the  debts  of  the  Union,  and  must  be  authorized  to 
use  the  means  which  appear  to  itself  most  eligible  to  effect  that 
object.  It  may  purchase  and  remit  bills  for  this  object,  and 
pass  all  laws  to  render  effectual  the  collection  of  its  debts." 

It  is  under  the  same  implied  authority  that  the  United 
States  have  any  right  even  to  sue  in  their  own  courts,  for  an 
express  power  is  nowhere  given  in  the  Constitution.  Congress 
may  not  only  authorize  suits  to  be  brought  in  the  name  of  the 
United  States,  but  in  the  name  of  any  artificial  person,  such  as 
the  Postmaster  General.  The  right  of  making  contracts  and 
instituting  suits  is  an  incident  to  the  general  right  of  sovereignty. 
The  United  States,  being  a  body  politic,  may  within  the  sphere 
of  the  constitutional  powers  confided  to  them  and  through  the 
instrumentality  of  the  proper  department  to  which  those  powers 
are  confided  enter  into  contracts  not  prohibited  by  law  and 
appropriate  money  to  the  just  exercise  of  those  powers. 

Section  9,  of  Article  I,  affords  an  important  protection  to 
every  citizen  in  the  country,  to  wit,  "The  privilege  of  the  writ 
of  habeas  corpus  shall  not  be  suspended,  unless  when,  in  cases 
of  rebellion  or  invasion,  the  public  safety  may  require  it."  The 
President  of  the  United  States  has  no  power  to  suspend  the 
privilege  of  the  writ  of  habeas  corpus  without  ,an  act  of  Con- 
gress to  authorize  it.  The  effect  of  a  suspension  of  the 
privilege  of  this  writ  is  to  confer  on  the  Executive  the  power 
immemorially  exercised  by  the  British  Crown  before  the  pas- 
sage of  the  famous  habeas  corpus  act — namely,  the  power  to 
arrest  by  warrant  for  treason  or  suspicion  of  treason  without 
specially  expressing  the  nature  of  the  treasonable  acts  charged, 
and  to  imprison  the  party  so  arrested  on  such  warrant  for  an 
indefinite  period  without  bail  or  trial.  In  the  exercise  of  such 
a  power  there  must  be  a  warrant,  and  it  must  be  for  treasonable 
practices.     The  power  of  suspending  the  writ  of  habeas  cor- 


CONSTITUTIONAL  LAW  575 

pus  is  inconsistent  with  the  existence  of  a  free  government  and 
is  against  the  spirit  of  the  Constitution  and  of  all  the  foun- 
dations upon  which  it  is  erected. 

Ex  Post  Facto  Laws. 

A  protection  to  individual  liberty  of  equal  importance  to  the 
foregoing  is  provided  by  the  same  section  of  Article  I,  Section  9, 
which  declares  that  "no  bill  of  attainder  or  ex  post  facto  law 
shall  be  passed."  Ex  post  facto  laws  are  such  as  create  or  aggra- 
vate a  crime  or  increase  the  punishment  or  change  the  rules  of 
evidence  for  the  purpose  of  conviction.  The  phrase  only  applies 
to  penal  and  criminal  laws,  which  inflict  forfeitures  of  punish- 
ments, and  not  to  civil  proceedings  which  affect  private  rights 
retrospectively.  It  is  a  well  known  principle  of  law  that  where 
no  other  time  is  fixed  for  the  operation  of  a  penal  statute  it  takes 
effect  from  the  time  of  its  passage,  and  ignorance  of  the  existence 
of  such  act  forms  no  legal  excuse  for  a  violation  of  it.  In 
other  words,  the  Constitution  aims  to  protect  the  individual  from 
punishment  for  a  crime  committed  before  the  passage  of  an  act 
which  theretofore  was  not  provided  against. 

Prohibitions  upon  States. 

Certain  restrictions  upon  the  authority  of  the  States  are 
specifically  imposed  by  the  tenth  section  of  the  first  article, 
which  we  shall  next  proceed  to  investigate.  Some  of  these, 
and  especially  those  in  regard  to  the  power  of  taxation  and 
the  regulation  of  commerce,  will  be  omitted  here  for  the  reason 
that  they  have  been  considered  previously.  The  others  will  be 
examined  briefly  in  the  order  of  the  text  of  the  Constitution. 

The  first  clause  provides  that  "no  State  shall  enter  into  any 
treaty,  alliance  or  confederation ;  grant  letters  of  marque  or 
reprisal,  coin  money,  emit  bills  of  credit,  make  anything  but 
gold  and  silver  coin  a  tender  in  payment  of  debts,  pass  any  bill 
of  attainder  or  ex  post  facto  law,  or  law  impairing  the  obligation 
of  contracts,  or  g^ant  any  title  of  nobility." 

The  only  one  of  these  restrictions  requiring  special  com- 
ment is  that  regarding  the  impairment  of  the  obligation  of  con- 
tracts, which  concerns  every  business  man.  There  is  perhaps 
not  a  single  clause  of  the  Constitution  which  has  g^ven  rise  to 
more  controversy  than  this  clause.  The  provision  has  never  been 
understood  to  embrace  other  contracts  than  those  which  respect 
property  or  some  object  of  value,  and  confer  rights  which  may 


576  CONSTITUTIONAL  LAW 

be  asserted  in  a  court  of  justice.  A  private  charter  is  such  a 
contract.  An  appointment  to  a  salaried  office,  however,  is  not  a 
contract  within  the  meaning  of  the  Constitution.  All  contracts 
are  subject  to  the  rights  of  eminent  domain  existing  in  the  several 
States,  and  the  exercise  of  this  power  does  not  conflict  with  the 
Constitution.  Nor  does  the  exercise  of  the  power  of  taxation. 
It  has  been  held  in  construing  this  clause  that  its  spirit  is  not 
violated  by  the  passage  by  a  State  of  Statutes  of  Limitation, 
exemption  laws,  insolvent  laws  discharging  the  person  of  a 
debtor  from  imprisonment,  or  recording  acts  postponing  an  elder 
to  a  younger  title  after  a  limited  period.  Whatever  belongs  merely 
to  remedy  may  be  altered  according  to  the  will  of  the  State,  pro- 
vided the  alteration  does  not  impair  the  obligation  of  the  con- 
tract; but  if  that  effect  be  produced  it  is  immaterial  whether 
it  be  done  by  acting  on  the  remedy  or  directly  on  the  contract 
itself.  The  extent  of  the  change  is  immaterial,  any  postponement 
or  acceleration  of  the  performance  of  the  contract  impairing  its 
obligation. 

This  prohibition  would,  if  strictly  construed,  include  under 
the  word  "law"  only  statutes  enacted  by  State  Legislatures,  but  it 
has  been  determined  that  the  word  "law"  comprehends,  in  addi- 
tion to  acts  of  legislation.  State  Constitutions  and  constitutional 
amendments,  together  with  the  judicial  decisions  of  State  Courts 
of  last  resort,  rendered  subsequently  to  the  making  of  the  con- 
tract in  question  and  antecedently  to  the  suit  in  which  the  Court 
determined  the  invalidity  of  the  contract.  To  understand  the 
meaning  of  this  clause,  we  must  have  a  clear  conception  of 
what  is  meant  by  the  obligation  of  a  contract.  It  seems  agreed 
that  when  the  obligation  of  contract  is  spoken  of  in  the  Con- 
stitution, we  are  to  understand  not  the  mere  moral,  but  the  legal 
obligation  of  contracts,  and  in  this  connection  it  is  important 
to  distinguish  between  what  is  a  mere  breach  of  contract  and 
what  constitutes  an  impairment  of  the  obligation  thereof.  The 
moral  obligation  of  contracts  is,  so  far  as  human  society  is 
concerned,  of  an  imperfect  kind,  which  the  parties  are  left  free 
to  obey  or  not,  as  they  please.  No  human  lawgiver  can  either 
impair  or  reach  it.  The  Constitution  has  not  in  contemplation 
any  such  obligations,  but  such  only  as  might  be  impaired  by  a 
State.  It  is  the  civil  obligation  of  contracts  which  this  clause  is 
designed  to  cover.  The  civil  obligation  of  a  contract  may  be 
defined  as  the  duty  of  performance  which  the  law  imposes  on 
one  or  other,  or  both,  of  the  parties  to  the  contract.  In  the 
language  of  Chief  Justice  Marshall,  "Any  law  which  releases  a 


CONSTITUTIONAL  LAW  577 

part  of  this  obligation  must  in  the  literal  sense  of  the  word 
impair  it." 

A  State  cannot  take  away  by  statute  all  or  a  substantial  part 
of  the  power  for  the  enforcement  of  a  contract.  Gjnsequently 
it  cannot  forbid  its  courts  to  entertain  jurisdiction  of  a  suit 
to  enforce  or  obtain  damages  for  the  breach  of  a  class  of  con- 
tracts legally  valid  when  made.  Nor  can  a  State  after  the  mak- 
ing of  a  contract  change  to  the  prejudice  of  either  party  the 
measure  of  damages  for  its  breach. 

It  is  unconstitutional  for  a  State  to  materially  increase  the 
debtor's  exemption  after  a  judgment  has  been  entered.  Further- 
more, a  State  cannot,  after  the  making  of  a  mortgage,  enlarge 
the  period  of  time  allowed  for  the  redemption  after  foreclosure, 
nor  take  away  the  right  to  compound  interest,  if  given  by  the 
law  existing  at  the  time  of  the  making  of  the  contract. 

Whether  a  State  Legislature  has  authority  to  pass  a  law 
declaring  a  marriage  void,  or  to  award  divorce,  has  been  made  a 
question  upon  which  the  authorities  are  somewhat  conflicting. 
Marriage,  though  it  be  a  civil  institution,  is  understood  to  con- 
stitute a  solemn,  obligatory  contract  between  the  parties,  and  it 
has  been  denied  that  a  State  Legislature  constitutionally  possesses 
authority  to  dissolve  that  contract  against  the  will  and  without 
the  default  of  either  party.  Some  courts  have  insisted  that 
the  granting  of  a  divorce  was  a  judicial  power,  and  consequently 
could  not  be  exercised  by  the  Legislature.  The  better  authority, 
however,  holds  that  marriage  is  a  civil  contract,  and  that  the 
Legislature  of  a  State  may  regulate  the  remedy  for  this  breach. 

Contracts  for  the  payment  of  money  being  within  the  pro- 
tection of  the  constitutional  prohibition  of  the  impairment  of 
their  obligation,  judgments  upon  such  contracts  are  equally 
entitled  to  protection.  Therefore,  a  judgment  against  a  munici- 
pal corporation  founded  upon  a  breach  of  contract  is  not  affected 
by  a  subsequent  legislative  abolition  of  the  municipality's  power 
to  levy  taxes  for  the  payment  of  its  debts.  But  the  rights  of 
a  judgment  creditor  are  not  impaired  by  a  State  statute  reducing 
the  rate  of  interest  thereafter  to  accrue  upon  existing  judgments : 
nor  are  judgments  founded  upon  torts,  contracts  whose 
obligations  will  be  protected  against  subsequent  legislation. 

In  concluding  our  discussion  of  this  clause,  the  force  and 
effect  of  the  prohibition  as  construed  by  the  Supreme  Court  of 
the  United  States  may  be  summarized  as  follows:  A  State  may 
not  by  any  law  or  by  any  act  to  which  the  State  by  its  enforce- 
ment thereof  gives  the  force  of  a  law,  deprive  a  party  of  the 

ST 


578  CONSTITUTIONAL  LAW 

legal  right  of  enforcing,  or  obtaining  compensation  for  the 
breach  of  an  express  contract,  executed  or  executory,  between 
individuals,  or  between  a  State  and  individuals,  but  a  State  may 
regulate  or  limit  the  remedies  of  the  contracting  parties,  provided 
that  it  leaves  in  force  a  substantial  part  of  the  legal  remedies 
which  subsisted  at  the  time  the  contract  was  made. 

It  seems  to  be  the  general  opinion  that  since  the  American 
Revolution  no  State  government  can  be  presumed  to  possess  the 
transcendental  sovereignty  to  take  away  vested  rights  of  prop- 
erty. No  government  would  be  deemed  to  be  free  where  the 
rights  of  property  are  left  solely  dependent  upon  a  legislative  body 
without  any  restraint.  The  rights  of  personal  liberty  and  private 
property  should  be  held  sacred  and  a  State  Legislature  is  for- 
bidden by  the  Federal  Constitution  to  violate  or  disregard  them. 

The  Constitution  of  the  United  States  was  not  framed  to 
meet  only  the  exigencies  of  the  period  of  its  formation,  nor  does 
it  purport  to  a  code  which  with  minute  detail  prescribes  all  that 
may  be  done,  and  all  that  may  not  be  done  by  Congress  in  the 
execution  of  the  powers  specifically  granted.  As  Daniel  Web- 
ster said  in  one  of  his  famous  arguments,  and  as  repeated  by 
Chief  Justice  Marshall:  'The  Constitution  enumerates  but  does 
not  define  the  powers  which  it  grants,  nor  does  it  prescribe  the 
means  which  may  rightfully  be  used  in  executing  those  powers 
and  without  whose  use  the  grant  of  the  powers  would  be 
nugatory." 

Article  I,  Section  8,  of  the  Constitution,  declares  that  "the 
Congress  shall  have  power  to  make  all  laws  which  shall  be  neces- 
sary and  proper  for  carrying  into  execution  the  foregoing  pow- 
ers and  all  other  powers  vested  by  this  Constitution  in  the  Gov- 
ernment of  the  United  States  or  in  any  department  or  officer 
thereof."  The  question  arises — How  is  it  to  be  determined  what 
laws  are  necessary  and  proper?  If  Congress  can  so  determine, 
obviously  every  act  of  Congress  must  be  regarded  as  constitu- 
tional. If  the  final  determination  of  this  question  is  to  be  made 
by  a  Court,  what  principles  are  to  guide  the  Judges  in  reaching 
a  conclusion  ?  The  answer  to  this  question,  as  found  in  the  best 
authorities,  is  as  follows.  "Let  the  end  be  legitimate,  let  it  be 
within  the  scope  of  the  Constitution,  and  all  means  which  are 
appropriate,  which  are  plainly  adapted  to  the  end,  which  are 
not  prohibited,  but  consistent  with  the  letter  and  spirit  of  the 
Constitution  are  constitutional." 

By  virtue  of  the  implied  powers,  it  has  been  held  that  Con- 
gress may  enact  statutes  creating  banking  corporations  as  fiscal 


CONSTITUTIONAL  LAW  579 

aids  to  the  Government ;  regulating  the  carriage  of  the  mails  and 
determining  what  may  be  transported  and  what  must  be  ex- 
cluded from  the  mails;  exercising  the  right  of  eminent  domain 
with  regard  to  land  within  the  lx)unds  of  a  State  and  held  in 
private  ownership;  providing  for  the  exclusion  or  expulsion  of 
aliens  from  the  limits  of  the  United  States.  The  Government 
of  the  United  States  is  one  of  enumerated  powers,  the  national 
Constitution  being  the  instrument  which  specifies  them,  and  in 
which  authority  should  be  found  for  the  exercise  of  any  power 
which  the  national  Government  assumes  to  possess.  In  this 
respect  it  differs  from  the  Constitutions  of  the  several  States, 
which  are  not  grants  of  powers  to  the  States,  but  which  appor- 
tion and  impose  restrictions  upon  the  powers  which  the  States 
inherently  possess.  It  was  no  uncommon  occurrence  in  early  days 
for  the  individual  States  to  claim  the  right  to  interpret  the  Fed- 
eral Constitution  for  themselves  individually,  and  in  their  aggre- 
gate capacity,  independent  of  Federal  authority.  But  it  is  now 
an  established  principle  that  in  all  cases  involving  a  construction 
of  the  Federal  Constitution,  the  courts  of  the  United  States 
have  exclusive  jurisdiction  and  their  decisions  are  binding  upon 
the  State  courts.  The  courts  of  the  several  States  are  as  much 
bound  to  uphold  the  supremacy  of  the  Federal  Constitution  as 
are  the  Federal  courts. 

Judicial  Interpretation. 

From  force  of  circumstances  and  conditions  necessarily 
arising  in  the  administration  of  the  affairs  of  the  Government, 
it  is  evident  that  those  who  are  charged  with  official  duties, 
whether  executive,  legislative  or  judicial,  must  necessarily  con- 
strue the  Constitution  and  laws  in  numerous  instances.  Every 
department  of  the  Government  invested  with  constitutional 
powers  must,  in  the  first  instance,  be  the  judge  of  its  powers 
or  it  could  not  act;  and  this  practical  construction  by  persons 
or  departments  outside  of  the  judiciary  may  or  may  not  be 
final,  according  to  the  circumstances  and  nature  of  each  par- 
ticular case.  That  is  to  say,  whenever  a  constitutional  provision 
or  statute  gives  a  discretionary  power  to  be  exercised  when  and 
under  such  circumstances  as  those  who  are  charged  with  exer- 
cising such  power  may  deem  expedient,  the  construction  given 
to  all  such  provisions  or  statutes  by  those  charged  with  such 
duties  is  conclusive  and  not  subject  to  review  by  the  judicial 
power,  even  though  erroneous. 

Whenever  a  statute  gives  a  discretionary  power  to  any  per- 


58o  CONSTITUTIONAL  LAW 

son  to  be  exercised  by  him  upon  his  own  opinion  of  certain  facts, 
it  is  a  sound  rule  of  construction  that  the  statute  constitutes  him 
the  sole  and  exclusive  judge  of  the  existence  of  those  facts. 

As  all  constitutional  questions  cannot  receive  judicial  inter- 
pretation, it  follows  that  only  in  cases  where  some  right,  public 
or  private,  is  involved,  which  results  in  litigation  and  is  not 
included  in  that  class  of  cases  which  are  addressed  to  the  discre- 
tion of  the  other  departments,  questions  requiring  construction 
of  constitutional  provisions,  can  be  brought  to  the  attention  of 
the  judiciary,  and  judicial  construction  of  such  provisions  or 
statutes  obtained  in  the  course  of  judicial  administration,  and 
when  this  is  done  the  law  as  declared  in  the  judgment  rendered 
must  be  taken  as  the  authoritative  rule  within  the  jurisdiction 
in  which  it  is  announced,  until  reversed,  overruled  or  changed 
by  constitutional  amendment  or  legislation. 

In  construing  the  Constitution  the  purpose  is  to  give  effect 
to  the  intent  of  the  framers  and  of  the  people  who  have  adopted 
it,  and  it  is  a  rule  of  construction  that  the  Constitution  is  to  be 
construed  so  as  to  promote  the  objects  for  which  it  was  framed 
and  adopted;  and  to  accomplish  this  result  the  extremes  of  both 
a  liberal  and  a  strict  construction  are  to  be  avoided  and  technical 
rules  are  to  be  excluded. 

Another  well-recognized  rule  of  construction  is  that  in  in- 
terpreting the  Constitution,  the  whole  instrument  is  to  be  exam- 
ined with  a  view  of  ascertaining  the  meaning  of  each  and  every 
part.  The  presumption  and  legal  intendment  is  that  each  and 
every  clause  in  a  written  constitution  has  been  inserted  for 
some  useful  purpose,  and,  therefore,  the  instrument  must  be  con- 
strued as  a  whole,  in  order  that  its  intent  and  general  purposes 
may  be  ascertained ;  and  as  a  necessary  result  of  this  rule  it  fol- 
lows that  wherever  it  is  possible  to  do  so  each  provision  must  be 
construed  so  that  it  shall  harmonize  with  all  others,  without  dis- 
torting the  meaning  of  any  of  such  provisions,  to  the  end  that 
the  intent  of  the  framers  may  be  ascertained  and  carried  out 
and  effect  given  to  the  instrument  as  a  whole. 

The  Constitution  has  been  construed  to  operate  prospec- 
tively, unless  from  the  language  used  or  the  objects  to  be  accom- 
plished it  is  clearly  shown  that  some  provision  was  intended 
to  operate  retrospectively.  The  construction  given  must  always 
be  uniform,  so  that  the  operation  of  the  instrument  will  be  in- 
flexible, operating  at  all  times  aMke  and  in  the  same  manner  with 
reference  to  the  same  subjects. 

As  it  would  not  be  practicable,  even  if  possible,  in  a  written 


CONSTITUTIONAL  LAW  581 

constitution  to  specify  in  detail  all  of  its  objects  and  purposes 
or  the  means  by  which  they  are  to  be  carried  into  effect,  consti- 
tutional powers  are  often  granted  or  restrained  in  general  terms 
from  which  implied  powers  and  restraints  necessarily  arise.  It 
is  an  established  rule  of  construction,  very  important  to  bear  in 
mind,  that  where  the  Constitution  confers  a  power  or  enjoins 
a  duty,  it  also  confers  by  implication  all  powers  that  are  neces- 
sary for  the  exercise  of  the  one  or  for  the  performance  of  the 
other. 

The  progress  of  our  investigation  into  the  Constitution  of 
the  United  States  has  now  directed  us  to  an  inquiry  of  the  organ- 
ization and  powers  of  the  Executive  Department  of  the  Govern- 
ment. The  most  difficult  task  of  any  government  is  to  properly 
outline  and  limit  the  powers  of  the  Executive. 

Under  the  Confederation  no  National  Executive  was  pro- 
vided for.  The  whole  powers  of  the  National  Government 
were  vested  in  a  Congress  consisting  of  a  single  body,  and  that 
body  was  authorized  to  appoint  a  committee  of  the  States,  com- 
posed of  one  delegate  from  every  State,  to  sit  in  the  recess,  and 
to  delegate  to  them  such  of  their  own  powers,  not  requiring  the 
consent  of  nine  States,  as  nine  States  should  consent  to.  This 
want  of  a  National  Executive  was  deemed  a  fatal  defect  in  the 
Confederation.  It  is  admitted,  as  a  fundamental  maxim  of  gov- 
ernment, that  the  legislative,  executive  and  judicial  departments 
ought  to  be  separate,  and  the  powers  of  one  ought  not  to  be  exer- 
cised by  either  of  the  others.  Where  one  is  exercised  by  the 
other,  a  real  despotism  results. 

The  framers  of  the  Federal  Constitution,  recognizing  this 
fact,  provided  in  Article  II  of  the  Constitution  that  "the  Execu- 
tive power  shall  be  vested  in  a  President  of  the  United  States 
of  America.  He  shall  hold  his  office  during  the  term  of  four 
years,  and,  together  with  the  Vice-President,  chosen  for  the 
same  tenn,  be  elected  as  follows"  (to  be  hereinafter  considered). 
Many  commentators  have  held  the  opinion  that  the  executive 
power  of  a  government  should  be  vested  in  two  or  more  per- 
sons rather  than  in  a  single  individual.  The  history  of  ancient 
nations,  particularly  that  of  Rome,  points  out  the  fact  that  many 
mischiefs  arose  from  dissensions  between  the  consuls,  and  be- 
tween the  military  tribunes,  who  were  at  times  substituted  in 
their  stead.  It  is  obvious  that  a  division  of  the  executive  power 
between  two  or  more  persons  must  always  tend  to  produce  dis- 
sensions. Whenever  two  or  more  persons  are  engaged  in  any 
common  enterprise  or  pursuit  there  is  always  danger  of  differ- 


S82  CONSTITUTIONAL  LAW 

ence  of  opinion.  If  it  be  a  public  trust  or  office  in  which  they 
are  clothed  with  equal  dignity  and  authority,  there  are  peculiar 
dangers  arising  from  personal  emulation  or  animosity;  from 
superior  talents  on  one  side,  encountering  strong  jealousies  on  the 
other;  from  pride  of  opinion  on  one  side  and  weak  devotion  to 
popular  prejudices  on  the  other.  From  these  causes  the  most 
bitter  rivalries  and  dissensions  will  occur,  which  weaken  the 
authority  and  distract  the  plans  and  operations  of  the  executive 
department,  even  at  the  most  critical  moments.  Furthermore, 
plurality  in  the  executive  diminishes  the  means  as  well  as  the 
power  of  fixing  responsibility  of  bad  measures  upon  the  real 
authors.  For  these  reasons  it  was  decided  to  vest  the  executive 
power  in  a  single  individual,  a  President. 

The  Chief  Executive. 

It  has  been  decided  that  an  act  done  by  one  President,  vest- 
ing a  right  in  a  citizen,  is  not  subject  to  review  or  reversal  by 
his  successor.  It  has  been  held,  however,  that  a  conditional 
pardon,  granted  by  one  President,  may  be  revoked  by  his  suc- 
cessor, before  delivery  to  the  prisoner. 

The  next  clause  of  Article  II  points  out  the  manner  in 
which  the  President  is  to  be  chosen.  A  review  of  our  Presi- 
dential elections  demonstrates  the  fact  that  the  President  is  not, 
strictly  speaking,  elected  by  popular  vote.  In  view  of  the  fre- 
quent discussions  upon  this  point,  it  will  be  well  to  inquire  into 
the  original  scheme  embodied  in  the  Constitution,  together  with 
the  amendment  subsequently  passed.  The  Constitution  as  orig- 
inally adopted  provides  that  "each  State  shall  appoint,  in  such 
manner  as  the  Legislature  thereof  may  direct,  a  number  of  elec- 
tors equal  to  the  whole  number  of  Senators  and  Representatives 
to  which  the  State  may  be  entitled  in  the  Congress;  but  no 
Senator,  or  Representative,  or  person  holding  an  office  of  trust 
or  profit  under  the  United  States  shall  be  appointed  an  elector. 

"The  electors  shall  meet  in  their  respective  States  and  vote 
by  ballot  for  two  persons,  of  whom  one  at  least  shall  not  be  an 
inhabitant  of  the  same  State  with  themselves.  And  they  shall 
make  a  list  of  all  persons  voted  for,  and  of  the  number  of  votes 
for  each,  which  list  they  shall  sign  and  certify  and  transmit 
sealed  to  the  seat  of  Government  of  the  United  States,  directed 
to  the  President  of  the  Senate.  The  President  of  the  Senate 
shall  in  the  presence  of  the  Senate  and  House  of  Representa- 
tives open  all  certificates  arid  the  votes  shall  then  be  counted. 


CONSTITUTIONAL  LAW  583 

The  person  having  the  greatest  number  of  votes  shall  be  Presi- 
dent, if  such  number  be  a  majority  of  the  whole  number  of 
electors  appointed;  and  if  there  be  more  than  one  who  have  such 
majority,  and  have  an  equal  number  of  votes,  then  the  House 
of  Representatives  shall  immediately  choose  by  ballot  one  of 
them  for  President ;  and  if  no  person  have  a  majority,  then  from 
the  five  highest  on  the  list  the  said  House  shall  in  like  manner 
choose  the  President.  But  in  choosing  the  President  the  votes 
shall  be  taken  by  States,  the  representation  from  each  State 
having  one  vote;  a  quorum  for  this  purpose  shall  consist  of 
a  member  or  members  from  two-thirds  of  the  States,  and  a 
majority  of  all  the  States  shall  be  necessary  to  a  choice.  In 
every  case,  after  the  choice  of  the  President,  the  person  having 
the  greatest  number  of  votes  of  the  electors  shall  be  the  Vice- 
President,  But  if  there  should  remain  two  or  more  who  have 
equal  votes,  the  Senate  shall  choose  from  them  by  ballot  the 
Vice-President." 

The  Electoral  College. 

The  principal  motive  which  induced  a  change  of  the  choice 
of  President  from  a  national  Legislature  (which  was  at  first 
contemplated)  was  to  have  the  sense  of  the  people  operate  in 
the  choice  of  the  person  to  whom  so  important  a  trust  was  con- 
fided. This  would  be  accomplished  better,  it  was  thought,  by 
committing  the  right  of  choice  to  persons  selected  for  that  sole 
purpose,  instead  of  persons  selected  for  the  general  purposes 
of  legislation.  Hence  an  electoral  college  was  provided  for. 
The  President  thus  chosen  by  this  intermediate  body  is  far 
more  independent  than  if  chosen  by  a  legislative  body,  to  whom 
he  might  be  expected  to  make  corresponding  sacrifices  to  gratify 
their  wishes  or  reward  their  services.  It  was  further  thought 
that,  being  chosen  by  the  voice  of  the  people,  the  Executive 
would  turn  his  gratitude  in  the  natural  direction,  and  sedulously 
guard  the  people's  rights. 

The  number  of  electors  is  equal  to  the  number  of  Senators 
and  Representatives  of  each  State,  thus  giving  to  each  State  as 
virtual  representation  in  the  electoral  colleges  as  that  which  it 
enjoys  in  Congress.  The  votes  when  given  are  to  be  transmitted 
to  the  seat  of  the  National  Government,  and  there  opened  and 
counted  in  the  presence  of  both  Houses.  The  person  who  has 
the  next  highest  number  of  votes  after  the  choice  of  President 
is  to  be  Vice-President.     If  none  of  the  candidates  for  Presi- 


584  CONSTITUTIONAL  LAW 

dent  has  the  required  majority  the  House  of  Representatives, 
being  the  popular  branch  of  the  Government,  is  to  elect  from 
the  five  highest  on  the  list  of  the  person  whom  they  may  deem 
best  qualified  for  the  office,  each  State  being  accorded  one  vote  in^ 
the  choice.  In  the  event  of  a  Vice-President  not  being  chosen 
as  provided  for,  the  Senate  is  given  the  right  to  choose. 

It  may  be  observed  that  in  no  respect  have  the  enlarged  and 
liberal  views  of  the  framers  of  the  Constitution,  and  the  expecta- 
tions of  the  public  when  it  was  adopted,  been  so  completely 
frustrated  as  in  the  practical  operation  of  the  system.  It  is  a 
notorious  fact  that  the  electors  are  now  chosen  wholly  with  ref- 
erence to  particular  candidates,  and  are  pledged  to  vote  for  them. 
The  candidates  for  the  Presidency  are  selected  and  announced 
in  each  State  long  before  the  election;  and  an  enterprising  can- 
vass is  maintained  in  the  newspapers,  and  in  party  meetings,  to 
secure  votes  for  the  favored  candidate  and  to  defeat  his  oppo- 
nents. So  that  nothing  is  left  to  the  electors  after  their  choice 
but  to  register  votes  which  are  already  pledged.  As  a  matter  of 
fact,  the  exercise  of  an  independent  judgment  by  an  elector 
would  be  treated  as  a  political  usurpation,  dishonorable  to  the 
individual  and  a  fraud  upon  his  constituents. 

In  the  third  Presidential  election  (in  which  Thomas  JeflFer- 
son  and  Aaron  Burr  were  candidates),  the  defect  in  the  system 
above  set  forth  was  practically  illustrated.  Mr.  Bayard,  of  Del- 
aware, by  his  final  vote  in  favor  of  Mr.  Jefferson,  decided  the 
election.  It  was  remarked  at  the  time  that  in  the  election  of  Mr. 
Jefferson  the  votes  of  two  or  three  States  were  held  by  persons 
who  soon  afterward  received  office  from  him.  It  cannot  escape 
notice  that  if  the  House  of  Representatives  is  to  choose  a  Presi- 
dent the  choice  is  apt  to  be  influenced  by  many  motives  indepen- 
dent of  his  merits  and  qualifications. 

As  a  result  of  the  election  in  1801,  the  Twelfth  Amendment 
to  the  Constitution  was  passed  in  1804,  and,  as  this  amendment 
materially  changes  the  mode  of  electing  a  President  in  several 
respects,  we  w^ill  quote  it  in  full: 

The  electors  shall  meet  in  their  respective  States  and  vote 
by  ballot  for  President  and  Vice-President,  one  of  whom  at 
least  shall  not  be  an  inhabitant  of  the  same  State  with  them- 
selves; they  shall  name  in  their  ballots  the  person  voted  for  as 
President,  and  in  distinct  ballots  the  person  voted  for  as  Vice- 
President;  and  they  shall  make  distinct  lists  of  all  persons 
voted  for  as  President,  and  of  all  persons  voted  for  as  Vice- 
President,  and  of  the  number  of  votes  for  each ;  which  lists  they 


CONSTITUTIONAL  LAW  585 

shall  sign  and  certify,  and  transmit,  sealed,  to  the  seat  of  Gov- 
ernment of  the  United  States,  directed  to  the  President  of  the 
Senate;  the  President  of  the  Senate  shall,  in  the  presence  of 
the  Senate  and  House  of  Representatives,  open  all  the  certificates, 
and  the  votes  shall  then  be  counted;  the  person  having  the 
greatest  number  of  votes  for  President  shall  be  the  President,  if 
such  number  be  a  majority  of  the  whole  number  of  electors 
appointed;  and  if  no  person  has  such  majority,  then,  from  the 
persons  having  the  highest  numbers,  not  exceeding  three  (note 
change  from  five  as  in  original  text),  on  the  list  of  those  voted 
for  as  President,  the  House  of  Representatives  shall  choose 
immediately,  by  ballot,  the  President.  But  in  choosing  the  Pres- 
ident, the  votes  shall  be  taken  by  States,  the  representation  from 
each  State  having  one  vote ;  a  quorum  for  this  purpose  shall  con- 
sist of  a  member  or  members  from  two-thirds  of  the  States, 
and  a  majority  of  all  the  States  shall  be  necessary  to  a  choice. 
And  if  the  House  of  Representatives  shall  not  choose  a  Presi- 
dent, whenever  the  right  of  choice  shall  devolve  upon  them, 
before  the  fourth  day  of  March  next  following,  then  the  Vice- 
President  shall  act  as  the  President,  as  in  the  case  of  the  death 
or  other  constitutional  disability  of  the  President. 

The  person  having  the  greatest  number  of  votes  as  Vice- 
President,  shall  be  the  Vice-President,  if  such  number  be  a 
majority  of  the  whole  number  of  electors  appointed;  and  if 
no  person  have  a  majority,  then  from  the  two  highest  numbers 
on  the  list  the  Senate  shall  choose  the  Vice-President ;  a  quorum 
for  the  purpose  shall  consist  of  two-thirds  of  the  whole  number 
of  Senators,  and  a  majority  of  the  whole  number  shall  be  neces- 
sary to  a  choice. 

But  no  person  constitutionally  ineligible  to  the  office  of 
President  shall  be  eligible  to  that  of  Vice-President  of  the 
United  States. 

The  electors  meet  in  their  respective  States  on  the  first 
Wednesday  in  December  following  the  election,  and  their  re- 
turns must  be  transmitted  to  the  seat  of  Government  before  the 
first  Wednesday  in  the  following  January.  The  certificates  are 
opened  and  counted  on  the  second  Wednesday  of  the  succeeding 
February. 

The  changes  which  this  amendment  effects  should  be  care- 
fully noted.  In  the  first  place,  it  provides  that  the  ballots  of  the 
electors  shall  be  separately  gpven  for  President  and  Vice-Presi- 
dent, instead  of  one  ballot  for  two  persons  as  President.  By 
this  amendment  the  Senate  may  proceed  to  a  choice  of  the  Vice- 


586  CONSTITUTIONAL  LAW 

President  immediately  on  ascertaining  the  returns  of  the  votes. 
In  the  next  place,  under  the  original  mode  if  no  choice  should 
be  made  of  a  President,  by  the  House  of  Representatives  until 
after  the  expiration  of  the  term  of  the  preceding  officer,  there 
would  be  no  person  to  perform  the  functions  of  the  office  and 
interregnum  would  ensue,  causing  a  total  suspension  of  the  pow- 
ers of  government.  By  virtue  of  the  amendment  quoted  the 
new  Vice-President  would,  in  such  case,  act  as  President. 
There  are  several  other  minor  changes,  which,  however,  need  not 
be  commented  upon  here.  It  might  be  observed  that  this  amend- 
ment has  diminished  the  dignity  and  importance  of  the  office  of 
Vice-President.  Originally  he  was  a  competitor  for  the  Presi- 
dency.    This  is  no  longer  the  case. 

Congress  is  given  the  power  to  determine  the  time  of 
choosing  the  electors,  and  the  day  on  which  they  shall  give  their 
votes,  which  day  shall  be  the  same  throughout  the  United  States. 

The  elector  is  presumed  to  be  entirely  at  liberty  to  act 
according  to  the  dictates  of  his  own  judgment  when  the  period 
arrives  for  casting  his  vote;  but  whatever  may  be  the  theory, 
the  fact  is  otherwise  in  practice.  In  1872  Horace  Greeley,  one 
of  the  candidates  for  the  Presidency,  died  after  the  popular 
election  and  before  the  electoral  college  had  convened.  Under 
such  circumstances,  the  electors  chosen  to  vote  for  him  were 
left  at  liberty  to  vote  as  they  pleased,  and  as  they  did  not  consti- 
tute a  majority,  so  as  to  make  united  action  important,  they 
scattered  their  votes  according  to  personal  preferences. 

Qualifications. 

It  is  well  known  that  no  other  than  a  natural-bom  citi- 
zen who  is  at  least  thirty-five  years  old  and  who  has  been  four- 
teen years  a  resident  within  the  United  States  is  ehgible  to  be- 
come President.  In  case  of  the  death,  resignation  or  inability 
of  the  President  to  discharge  the  powers  and  duties  of  his 
office,  the  same  shall  devolve  upon  the  Vice-President.  This 
has  occurred  four  times  within  the  history  of  our  country.  In 
the  event  of  the  death,  resignation  or  inability  of  the  President, 
and  Vice-President,  Congress  is  given  authority  to  declare  who 
shall  then  act  as  President,  and  such  officer  shall  then  act  accord- 
ingly until  the  disability  be  removed,  or  a  President  elected. 
The  President  before  entering  upon  the  duties  of  his  office  shall 
take  the  following  oath :  "1  do  solemnly  swear  (or  affirm)  that  I 
will  faithfully  execute  the  office  of  President  of  the  United 


CONSTITUTIONAL  LAW  587 

States,  and  will,  to  the  best  of  my  ability,  preserve,  protect  and 
defend  the  Constitution  of  the  United  States."  This  is  a  suit- 
able pledge  by  the  President  of  his  fidelity  and  responsibility 
to  his  country,  and  creates  upon  his  conscience  a  deep  sense  of 
duty,  by  an  appeal,  at  once  in  the  presence  of  God  and  man,  to 
the  most  sacred  and  solemn  sanctions  which  can  operate  upon  the 
human  mind. 

Having  considered  in  whom  the  executive  power  is  vested 
under  the  Constitution,  together  with  the  method  of  selection 
and  his  general  qualifications,  we  will  direct  our  attention  to  a 
brief  inquiry  into  his  general  powers  and  duties,  concluding 
which  we  will  consider  the  judicial  branch  of  the  Government. 

The  powers  and  duties  vested  in  the  Executive  under  the 
Constitution  of  the  United  States  are  set  forth  in  the  second 
and  third  sections  of  Article  II  thereof.  The  most 
obvious  powers  of  an  Executive  are  to  execute  the  laws,  main- 
tain peace  and  resist  foreign  invasion.  For  these  purposes  it  is 
provided  that  "the  President  shall  be  tommander-in-chief  of 
the  army  and  navy  of  the  United  States  and  of  the  militia  of 
the  several  States  when  called  into  the  actual  service  of  the 
United  States."  If  a  state  of  war  exists,  the  President,  as  com- 
mander-in-chief, has  the  authority,  without  any  act  of  Congress, 
to  exercise  all  belligerent  rights,  such,  for  instance,  as  to  institute 
a  blockade.  The  President  is  not  obliged  to  take  personally  the 
command  of  the  militia  when  called  into  the  service  of  the  gen- 
eral Government;  but  he  may  place  them  under  the  command 
of  officers  of  the  army  of  the  United  States,  to  whom,  in  his 
absence,  he  may  delegate  the  powers  vested  in  him  by  the  Con- 
stitution. Any  officer  of  the  army  may,  therefore,  be  required 
by  orders  from  the  President  to  perform  the  appropriate  duties 
of  his  station  in  the  militia,  when  in  the  service  of  the  United 
States,  whenever  the  public  interest  shall  so  require.  But  this 
power  must  be  exercised  in  strict  accordance  with  the  right  of 
appointment  of  militia  officers,  which  is  expressly  reserved  to 
the  States.  The  rules  and  orders  made  and  issued  by  the  Sec- 
retary of  War  and  of  the  Navy  are  to  be  considered  as  emanating 
from  the  President.  The  President  speaks  and  acts  through  the 
heads  of  departments  in  reference  to  the  business  committed 
to  them.  Congress  may,  however,  impo.se  independent  duties 
upon  the  head  of  a  department  when  not  repugnant  to  any  rights 
secured  by  the  Constitution. 

The  President  is  further  given  the  power  to  "require  the 
opinion,  in  writing,  of  the  principal  officer  in  each  of  the  execu- 


588  CONSTITUTIONAL  LAW 

tive  departments,  upon  any  subjects  relating  to  the  duties  of 
their  respective  offices."  The  custom  was  inaugurated  in  Wash- 
ington's administration  of  holding  a  consultation  with  the  heads 
of  departments,  either  assembled,  or  by  taking  their  opinions 
separately  in  conversation  or  in  writing.  Mr.  Jefferson's  practice 
of  holding  Cabinet  meetings  for  the  determination  of  all  impor- 
tant questions  of  administration  has  been  followed  by  the  later 
Presidents ;  but  there  is  no  law  requiring  this,  and  each  President 
will  determine  his  own  course.  The  Cabinet,  as  a  body  of 
councillors,  has  no  necessary  place  in  our  Constitutional  system ; 
the  President  and  not  the  Cabinet,  is  responsible  for  all  the 
measures  of  the  Administration,  and  whatever  is  done  by  the 
head  of  a  department  is,  in  contemplation  of  law,  done  by  the 
President  through  the  proper  executive  agent.  This  system  is 
directly  opposite  to  that  adopted  in  England.  In  Great  Britain 
the  Cabinet  is  responsible,  for  everything  done  by  the  King  is 
supposed  to  be  by  their  advice.  In  this  country  the  Cabinet  is 
not  required  to  be  in  accord  with  Congress  or  with  either  House 
thereof,  while  in  Great  Britain  they  must  be  in  harmony  with 
the  House  of  Commons  on  all  important  questions.  In  Great 
Britain  the  members  of  the  Cabinet  are  entitled  to  sit  in  the 
legislative  body,  whereas  in  the  United  States  Cabinet  members 
enjoy  no  such  privilege. 

The  President  is  further  authorized  to  "grant  reprieves 
and  pardons  for  offenses  against  the  United  States,  except  in 
cases  of  impeachment."  Many  commentators  contend  that  the 
power  of  pardon  does  not  exist  under  a  perfect  administration 
of  the  laws  and  that  the  admission  of  the  power  is  a  tacit 
acknowledgment  of  the  infirmity  of  the  course  of  justice.  But, 
as  stated  by  the  erudite  Story,  if  this  be  a  defect  at  all,  it  arises 
from  the  infirmity  of  human  nature  generally.  No  one  will  con- 
tend that  any  system  of  laws  can  provide  for  every  possible 
shade  of  guilt  a  proportionate  degree  of  punishment.  The  total 
exclusion  of  all  power  of  pardon  would  necessarily  introduce 
a  very  dangerous  power  in  Judges  and  juries  in  following  the 
spirit  rather  than  the  letter  of  the  laws.  There  are  not  only 
various  gradations  of  guilt  in  the  commission  of  the  same  crime, 
which  are  not  susceptible  of  any  previous  enumeration  and  defini- 
tion, but  the  proofs  must  in  many  cases  be  imperfect,  particu- 
larly as  to  the  aggravating  or  mitigating  circumstances.  The 
power  of  pardon  is  indispensable  in  order  to  correct  evils  and 
mistakes  subsequently  discovered.  A  sense  of  responsibility 
being  strongest  in  proportion  as  it  is  undivided,  the  prerogative  of 


CONSTITUTIONAL  LAW  589 

pardon  has  consequently  been  vested  exclusively  in  the  Executive. 
The  President,  it  has  been  held,  may  pardon  as  well  before 
trial  and  conviction  as  afterward.  He  may  also  pardon  after 
the  expiration  of  the  imprisonment,  which  forms  part  of  the 
sentence,  and  he  may  remit  a  fine  after  the  death  of  the  offender. 
He  may  grant  a  conditional  pardon  provided  the  condition  be 
compatible  with  the  genius  of  our  Constitution  and  laws.  Where 
the  condition  is  such  that  the  Government  has  no  power  to  carry 
it  into  effect,  the  pardon  will  be  in  effect  unconditional.  It 
should  be  borne  in  mind  that  a  conditional  pardon  is  not  com- 
plete until  delivery.  It  has  likewise  been  held  that  the  pardon- 
ing power  includes  that  of  remitting  fines,  penalties  and  for- 
feitures under  the  revenue  laws;  fines  imposed  on  defaulting 
j^irors  and  fines  for  contempt  of  Court  and  in  criminal  cases  in 
general.  The  President  has  no  power,  however,  to  remit  the 
forfeiture  of  a  bail  bond.  Nor  can  he,  by  a  pardon,  defeat  a 
legal  interest  or  right  which  has  become  vested  in  a  private 
citizen,  as,  for  example,  the  vested  fight  of  an  officer  making  a 
seizure.  The  Supreme  Court  has  decided  that  the  effect  of  a 
pardon  cannot  be  restricted  by  subsequent  legislation.  The  grant 
of  the  pardoning  power  neither  requires  nor  authorizes  the  Pres- 
ident to  re-examine  the  case  upon  new  facts,  nor  to  grant  a  par- 
don upon  the  assumption  of  the  new  facts  alleged.  A  pardon  is 
a  private  though  official  act  and  must  be  delivered  to  and  ac- 
cepted by  the  criminal.  The  President  alone  can  pardon  offenses 
committed  in  a  territory,  in  violation  of  the  acts  of  Congress. 

A  pardon  reaches  both  the  punishment  prescribed  for  the 
offense  and  the  guilt  of  the  offender;  and  when  the  pardon  is 
free,  it  releases  the  punishment  and  blots  out  of  existence  the 
guilt,  so  that  in  th^  eye  of  the  law  the  offender  is  as  innocent 
as  if  he  had  never  committed  the  offense. 

Treaty-Making  Power. 

The  power  to  make  treaties  which  is  vested  in  the  Execu- 
tive by  the  following  clause  of  Section  2  is  a  very  important 
one  and  embraces  all  sorts  of  treaties,  for  peace  or  war,  for 
commerce  or  territory,  for  indemnity  for  injuries  or  payment 
of  debts,  for  the  recognition  and  enforcement  of  principles  of 
public  law,  and  for  any  other  purposes  which  the  policy  or  in- 
terests of  this  country  may  dictate  in  its  intercourse  with  other 
nations.  Under  the  Confederation  the  treaty-making  power 
was  vested  solely  in  Congress.     Experience  demonstrated  the 


590  CONSTITUTIONAL  LAW 

defects  of  this  plan,  and  consequently  the  framers  of  the  Consti- 
tution vested  this  power  in  the  President.  The  qualification 
imposed  upon  the  exercise  of  this  power  is  that  treaties  be  made 
"by  and  with  the  advice  and  consent  of  the  Senate,"  and  it  is 
further  necessary  that  two-thirds  of  the  Senators  present  concur. 
Considering  the  delicacy  and  extent  of  the  power,  it  is  too  much 
to  expect  that  a  free  people  would  confide  to  a  single  magistrate, 
however  respectable,  the  sole  authority  to  act  conclusively,  as 
well  as  exclusively,  upon  the  subject  of  treaties.  Therefore, 
while  the  Constitution  confides  the  treaty-making  power  to  the 
executive  department,  it  guards  it  from  serious  abuse  by  placing 
it  under  the  ultimate  superintendence  of  a  select  body  of  high 
character  and  high  responsibility,  the  Senate.  The  President  is 
the  immediate  author  and  finisher  of  all  treaties,  but  no  treaty 
becomes  binding  upon  a  country  unless  it  receives  the  deliberate 
assent  of  two-thirds  of  the  Senate. 

Continuing,  the  Constitution  provides  that  he  (the  Presi- 
dent) "shall  nominate,  and  by  and  with  the  advice  and  consent 
of  the  Senate,  shall  appoint  Ambassadors,  other  public  Minis- 
ters and  Consuls,  Judges  of  the  Supreme  Court  and  all  other 
officers  of  the  United  States,  whose  appointments  are  not  herein 
otherwise  provided  for,  and  which  shall  be  established  by  law. 
But  the  Congress  may  by  law  vest  the  appointment  of  such  in- 
ferior officers,  as  they  think  proper,  in  the  President  alone,  in 
the  courts  of  law,  or  in  the  heads  of  departments." 

In  construing  these  powers  the  Supreme  Court  has  held  that 
the  nomination  and  appointment  to  an  office  are  voluntary  acts 
and  distinct  from  the  commissioning  of  such  appointee.  As  a 
matter  of  fact,  even  after  confirmation  of  an  appointment  by 
the  Senate,  the  President  may  in  his  discretion  withhold  a  com- 
mission; until  a  commission  has  been  signed  the  appointment 
is  not  fully  consummated.  The  Senate  cannot  originate  an 
appointment;  its  constitutional  action  is  confined  to  a  simple 
affirmation  or  rejection  of  the  President's  nominations,  and  such 
nominations  fall  whenever  it  disagrees  to  them.  The  power  of 
the  President  to  appoint  to  office  necessarily  includes  the  power 
to  remove  all  officers  appointed  and  commissioned  by  him, 
where  the  Constitution  has  not  otherwise  provided.  Therefore 
he  may  remove  a  Territorial  Judge  in  his  discretion. 

The  President  is  required  to  fill  vacancies  happening  during 
the  recess  of  the  Senate  by  granting  commissions  which  shall 
expire  at  the  end  of  their  next  session. 


CONSTITUTIONAL  LAW  591 

Judicial  Power. 

The  third  article  of  the  Constitution  embraces  the  organiza- 
tion and  powers  of  the  Judicial  Department.  The  Judicial  power 
is  "vested  in  one  Supreme  Court  and  in  such  inferior  courts  as 
the  Congress  may  from  time  to  time  ordain  and  establish."  The 
want  of  this  power  constituted  one  of  the  vital  defects  of  the 
Articles  of  Confederation.  Unless  the  Government  is  provided 
with  a  Judicial  Department  with  powers  co-extensive  with 
those  of  the  Legislative  Department,  it  must  naturally  be  un- 
safe. As  Montesquieu  remarks,  "there  is  no  liberty,  if  the 
Judiciary  Power  be  not  separated  from  the  Legislative  and 
Executive  Powers."  It  cannot  be  doubted  that  personal  security 
and  private  property  rest  entirely  upon  the  wisdom,  the  stability 
and  the  integrity  of  the  Courts  of  Justice.  In  a  Government 
such  as  ours,  where  there  is  an  assemblage  of  republics  com- 
bined under  a  common  head,  the  necessity  of  some  controlling 
judicial  power  to  ascertain  and  enforce  the  power  of  the  Union 
is  apparent. 

The  jurisdiction  of  the  courts  of  the  United  States  depends 
exclusively  on  the  Constitution  and  laws  of  the  United  States. 
The  Judiciary  must  decide  upon  the  constitutionality  of  the  acts 
and  laws  of  the  Federal  and  State  Governments.  Congress, 
having  the  power  to  establish  inferior  courts,  as  a  necessary  con- 
sequence has  the  right  to  define  their  respective  jurisdiction. 
With  the  exception  of  the  creation  of  the  Supreme  Court,  the 
power  of  Congress  to  create  inferior  courts  and  to  confer  upon 
them  as  much  or  as  little  jurisdiction  pertaining  to  the  Federal 
Government  as  it  thinks  best  is  unlimited. 

Section  i  of  Article  III  further  provides  that  "the  Judges 
both  of  the  Supreme  and  Inferior  Courts,  shall  hold  their  offices 
during  good  behavior ;  and  shall  at  stated  times  receive  for  their 
services  a  compensation,  which  shall  not  be  diminished  during 
their  continuance  in  office." 

The  Justices  of  the  Supreme  Court  are  expressly  required 
to  be  appointed  by  the  President,  by  and  with  the  advice  and  con- 
sent of  the  Senate,  as  has  been  pointed  out  heretofore. 

The  Judicial  Power  is  specifically  outlined  in  Section  2  of 
Article  III  to  "extend  to  all  cases  in  law  and  equity  arising  under 
this  Constitution,  the  laws  of  the  United  States,  and  treaties 
made  or  which  shall  be  made  under  their  authority ;  to  all  cases 
affecting  Ambassadors,  other  public  Ministers  and  Consuls,  to 
all  cases  of  admiralty  and  maritime  jurisdiction ;  to  controversies 


592  CONSTITUTIONAL  LAW 

to  which  the  United  States  shall  be  a  party;  to  controversies 
between  two  or  more  States;  between  a  State  and  citizens  of 
another  State;  between  citizens  of  different  States;  between 
citizens  of  the  same  State  claiming  lands  under  grants  of 
different  States ;  and  between  a  State,  or  the  citizens  thereof,  and 
foreign  States,  citizens  or  subjects." 

Federal  Jurisdiction. 

A  "case"  arises,  within  the  meaning  of  the  Constitution 
whenever  any  question  respecting  the  Constitution,  laws  or 
treaties  of  the  United  States  has  assumed  such  a  form  that  the 
judicial  power  is  capable  of  acting  on  it.  By  cases  in  law  are  to 
be  understood  suits  in  which  legal  rights  are  to  be  ascertained 
and  determined  in  contradistinction  to  those  where  equitable 
rights  alone  are  recognized,  and  equitable  remedies  administered. 
By  cases  in  equity  are  to  be  understood  suits  in  which  relief  was 
sought  according  to  the  principles  and  practice  of  the  equity 
jurisdiction  as  established  in  English  jurisprudence.  The  Fed- 
eral courts  have  jurisdiction  of  all  suits  affecting  public 
ministers,  and  the  recognition  of  the  Executive  of  the  United 
States  is  conclusive  as  to  the  public  character  of  the  party. 

The  jurisdiction  of  the  Admiralty  Courts  in  this  country 
at  the  time  of  the  Revolution,  and  for  a  century  before,  was 
more  extensive  than  that  of  the  High  Court  of  Admiralty  in 
England.  It  is  not  limited  to  the  particular  subject  over  which 
it  was  exercised  in  the  English  Courts  of  Admiralty  when  the 
Federal  Constitution  was  adopted;  neither  does  it  extend,  under 
the  Constitution  and  laws  of  Congress,  to  all  cases  which  would 
fall  within  its  cognizance,  according  to  the  civil  law,  and  the 
practice  and  usages  of  Continental  Europe.  The  Supreme  Court 
has  decided  that  the  admiralty  jurisdiction  of  the  United  States 
extends  to  the  navigable  lakes  and  rivers,  without  regard  to  the 
ebb  and  flow  of  the  tide  of  the  ocean.  It  embraces  all  maritime 
contracts  wheresoever  the  same  may  be  made  or  executed  and 
whatever  may  be  the  form  of  the  stipulation;  and  also  all  torts 
and  injuries  committed  upon  waters  within  the  jurisdiction  of 
the  United  States. 

Among  the  enumerated  powers  of  the  judiciary  is  that  relat- 
ing to  controversies  to  which  the  United  States  shall  be  a  party. 
Congress  never  having  authorized  suits  to  be  brought  against  the 
United  States,  no  such  action  can  be  commenced  or  prosecuted. 
This  does  not  prevent  the  exercise  of  appellate  jurisdiction,  to 


CONSTITUTIONAL  LAW  593 

obtain  by  writ  of  error  a  reversal  of  judgment  which  has  been 
rendered  in  favor  of  the  United  States.  Nor  docs  it  preclude 
individuals,  when  sued  by  the  United  States,  from  availing  them- 
selves of  credits  or  set-offs  against  the  United  States.  Claims 
against  the  Government  are  prosecuted  through  the  Court  of 
Claims.  As  stated  in  The  Federalist,  "it  is  a  known  maxim, 
justified  by  the  general  sense  and  practice  of  mankind,  and 
recognized  in  the  law  of  nations,  that  it  is  inherent  in  the  nature 
of  sovereignty  not  to  be  amenable  to  the  suit  of  any  private 
person  without  its  own  consent."  The  citizens  of  the  United 
States  are  not  wholly  destitute  of  remedy,  in  case  the  National 
Government  should  invade  their  rights,  either  by  private  injustice 
and  injuries  or  by  public  oppression.  In  ca.se  the  latter  occurs 
the  whole  structure  of  the  Government  is  so  organized  as  to 
afford  redress  by  enabling  the  people  to  remove  public  officers 
who  abuse  their  trust.  Concerning  private  injustice  and  injuries 
the  National  Government  is  per  se  incapable  of  any  personal 
wrong,  such  as  assault  and  battery.  Regarding  injury  to  prop- 
erty, the  remedy  for  such  lies  against  the  immediate  wrongdoer, 
who  may  be  sued,  and  who  cannot  shelter  himself  under  any 
immunity  of  the  Government  from  responsibility.  Consequently, 
if  any  agent  of  the  Government  shall  unjustly  invade  the  prop- 
erty of  a  citizen  under  color  of  a  public  authority,  he  must,  the 
same  as  any  other  violator  of  the  laws,  respond  in  damages.  Of 
the  remaining  controversies,  over  which  the  judiciary  of  the 
United  States  has  control,  little  need  be  said.  Citizenship  when 
spoken  of  in  the  Constitution  in  reference  to  the  jurisdiction  of 
the  Federal  courts,  means  nothing  more  than  residence.  A  cor- 
poration created  by  and  transacting  business  in  a  State  is  to  be 
deemed  an  inhabitant  of  the  State,  capable  of  being  treated  as  a 
citizen,  for  all  purposes  of  suing  and  being  sued.  The  Judiciary 
act  confines  Federal  jurisdiction,  on  the  ground  of  citizenship, 
to  cases  where  the  suit  is  between  a  citizen  of  a  State  where  the 
suit  is  brought,  and  the  citizen  of  another  State ;  a  mere  declara- 
tion of  intention  to  become  a  citizen,  under  the  naturalization 
laws,  is  not  sufficient  to  prevent  an  alien  from  being  regarded  as 
a  foreign  subject,  within  the  meaning  of  the  Constitution. 

Having  concluded  our  brief  review  of  the  classes  of  cases  to 
which  the  judicial  power  of  the  United  States  extends,  the  next 
inquiry  presented  is  in  what  mode  it  is  to  be  exercised  and  in 
what  courts  it  is  to  be  vested,  the  answer  to  which  is  contained 
in  the  succeeding  clause  of  the  Constitution;  to  wit:  'Tn  all  cases 
affecting  Ambassadors,  other  public  Ministers  and  Consuls,  and 

38 


594  CONSTITUTIONAL  LAW 

those  in  which  a  State  shall  be  a  party,  the  Supreme  Court  shall 
have  original  jurisdiction.  In  all  the  other  cases  before 
mentioned  the  Supreme  Court  shall  have  appellate  jurisdiction, 
both  as  to  law  and  fact,  with  such  exceptions  and  under  such 
regulations  as  the  Congress  shall  make." 

It  is  to  be  observed  that  by  the  above  clause  the  original 
jurisdiction  of  the  Supreme  Court  is  very  limited,  and  Congress 
cannot  constitutionally  confer  on  it  any  other  or  further  original 
jurisdiction. 

Trial  by  Jury. 

An  important  safeguard  to  personal  liberty  is  afforded  by  the 
provisions  in  the  next  clause  of  the  Constitution,  to  the  effect 
that  all  crimes  shall  be  triable  by  a  jury  except  in  cases  of 
impeachment.  A  trial  by  jury  is  generally  understood  to  mean 
ex  vi  termini — a  trial  by  a  jury  of  twelve  men,  impartially 
selected,  who  must  unanimously  concur  in  the  guilt  of  the  accused 
before  a  legal  conviction  can  be  had.  Any  law,  therefore,  dis- 
pensing with  any  of  these  requisites  may  be  considered  uncon- 
stitutional. Such  trial  must  be  held  in  the  State  where  the  said 
crimes  shall  have  been  committed ;  but  when  not  committed  with- 
in any  State,  the  trial  shall  be  at  such  place  or  places  as  Congress 
may  by  law  direct.  The  great  object  of  trial  by  jury  in  criminal 
cases  is  to  guard  against  a  spirit  of  oppression  on  the  part  of 
rulers  and  a  spirit  of  violence  on  the  part  of  the  people.  This 
right  constitutes  one  of  the  fundamental  articles  of  Magna 
Charta,  in  which  it  is  declared  that  no  man  shall  be  arrested,  nor 
imprisoned,  nor  banished,  nor  deprived  of  life,  liberty  or  prop- 
erty, but  by  the  judgment  of  his  peers  or  by  the  law  of  the  land. 
The  judgment  of  his  peers  here  alluded  to,  and  commonly  called 
in  the  quaint  language  of  former  times  a  trial  per  pais  or  trial 
by  the  country,  is  the  trial  by  jury,  who  are  called  the  peers  of 
the  party  accused,  being  of  the  like  condition  and  equality  in 
the  State.  When  our  ancestors  came  to  America  they  brought 
this  great  privilege  with  them.  It  is  now  incorporated  into  all 
our  State  constitutions  as  a  fundamental  right,  and,  in  the  lan- 
guage of  the  Supreme  Court,  "the  Constitution  of  the  United 
States  would  have  been  justly  obnoxious  to  the  most  conclusive 
objection  if  it  had  not  recognized  and  confirmed  it  in  the  most 
solemn  terms." 


CONSTITUTIONAL  LAW  595 


Treason. 


Treason  is  regarded  as  the  highest  crime  in  civil  society, 
since  its  aim  is  an  overthrow  of  the  government.  Its  tendency  is 
to  produce  the  greatest  public  alarm,  and  on  this  account  it  is 
peculiarly  odious.  It  is,  therefore,  important  to  clearly  under- 
stand what  treason  consists  of,  and  in  view  of  the  history  of 
England  in  dealing  with  treasons,  actual  and  constructive,  the 
framers  of  the  Constitution  determined  to  interpose  an  impass- 
able barrier  against  arbitrary  constructions  either  by  the  courts  or 
by  Congress,  upon  this  crime.  By  the  third  section  of  Article 
III,  treason  is  defined  as  follows:  "Treason  against  the  United 
States  shall  consist  only  in  levying  war  against  them,  or  in  adher- 
ing to  their  enemies,  giving  them  aid  and  comfort.  No  person 
shall  be  convicted  of  treason  unless  on  the  testimony  of  two 
witnesses  to  the  same  overt  act,  or  on  confession  in  open  court" 

It  has  been  held  that  a  conspiracy  to  subvert  the  Government 
by  force  is  not  treason.  There  must  be  an  actual  levying  of  war. 
An  enlistment  of  men,  who  are  not  assembled,  is  not  a  levying  of 
war  within  the  meaning  of  the  clause  in  question.  In  the  famous 
trial  of  Aaron  Burr  it  was  held  that  no  man  can  be  convicted  of 
treason  who  was  not  present  when  the  war  was  levied.  Con- 
gress is  given  the  power  under  the  Constitution  to  declare  the 
punishment  of  treason,  but  no  attainder  of  treason  will  work  cor- 
ruption of  blood  or  forfeiture  except  during  the  life  of  the 
person  attainted.  The  crime  being  of  so  serious  a  nature,  it  must 
be  proven  by  two  witnesses  or  a  confession  in  open  court. 

The  Fourth  Article. 

This  concludes  our  inquiry  into  the  organization  and  powers 
of  the  legislative,  executive  and  judicial  departments  of  our 
Government.  The  remaining  four  articles  of  the  Constitution, 
together  with  the  amendments  are  none  the  less  important  and 
consequently  a  brief  investigation  of  the  construction  placed 
upon  their  terms  will  be  instructive. 

Article  IV  provides  that  "full  faith  and  credit  shall  be 
given  in  each  State  to  the  public  acts,  records  and  judicial  pro- 
ceedings of  every  other  State.  A  judgment  of  a  State  Court  has 
the  same  credit,  validity  and  eflfcct,  in  every  other  Court  within 
the  United  States,  which  it  had  in  the  State  where  it  was  ren- 
dered. Such  judgments,  so  far  as  the  Court  rendering  them  had 
jurisdiction,  are  to  have  in  all  courts  full  faith  and  credit.  They 
have  not,  however,  full  power  and  conclusive  effect,  but  only 


596  CONSTITUTIONAL  LAW 

such  effect  as  they  possessed  in  the  State  whence  they  were  taken. 
Any  State  law  which  destroys  the  right  of  a  party  to  enforce  a 
judgment  regularly  obtained  in  another  State  is  unconstitutional. 

Section  2  of  Article  IV  provides  that  the  "citizens  of  each 
State  shall  be  entitled  to  all  privileges  and  immunities  of  citizens 
in  the  several  States."  It  is  obvious  that  if  the  citizens  of  each 
State  were  to  be  deemed  aliens  to  each  other,  they  could  not  take 
or  hold  real  estate,  or  other  privileges,  except  as  other  aliens. 
The  intention  of  this  clause  was  to  confer  on  them,  if  one  may 
so  say,  a  general  citizenship,  and  to  communicate  all  the  privileges 
and  immunities  which  the  citizens  of  the  same  State  would  be 
entitled  to  under  the  like  circumstances.  What  do  we  mean  by 
the  privileges  and  immunities  of  citizens  of  the  several  States? 
It  would  be  more  tedious  than  difficult  to  enumerate  all,  but  they 
may  be  comprehended  under  the  following  general  heads:  Pro- 
tection by  the  Government,  the  enjoyment  of  life  and  liberty, 
with  the  right  to  acquire  and  possess  property  of  every  kind,  and 
to  pursue  and  obtain  happiness  and  safety,  subject  nevertheless  to 
such  restraints  as  the  Government  may  justly  prescribe  for  the 
general  good  of  the  whole ;  the  right  of  a  citizen  of  one  State  to 
pass  through  or  to  reside  in  any  other  State,  for  the  purposes  of 
trade,  agriculture,  professional  pursuits,  or  otherwise;  to  claim 
the  benefit  of  the  writ  of  habeas  corpus;  to  institute  and  maintain 
actions  of  every  kind  in  the  courts  of  the  State;  to  take  holdi 
and  dispose  of  property,  either  real  or  personal,  and  an 
exemption  from  higher  taxes  or  imposition  than  are  paid  by 
citizens  of  the  other  State.  These  and  many  others  which  may 
be  mentioned  are,  strictly  speaking,  privileges  and  immunities, 
and  the  enjoyment  of  them  by  the  citizens  of  each  State  in  every 
other  State  was  manifestly  calculated  to  secure  and  perpetuate 
mutual  friendship  and  intercourse  among  the  people  of  the  differ- 
ent States  of  the  Union.  It  should  be  borne  in  mind  that 
provision  does  not  apply  to  corporations.  It  has  been  justly  said 
that  no  provision  in  the  Constitution  has  tended  so  strongly  to 
constitute  the  citizens  of  the  United  States  one  people  as  the 
clause  under  consideration. 

We  were  discussing  the  constitutional  provision  that  citizens 
of  each  State  shall  be  entitled  to  all  the  privileges  and  immunities 
of  citizens  in  the  several  States.  A  citizen  of  the  United  States, 
residing  in  any  State  of  the  Union,  is  a  citizen  of  that  State.  He 
is  entitled  to  all  the  privileges  of  a  citizen  of  that  State,  but  does 
not  carry  with  him  any  rights  enjoyed  under  the  laws  of  another 
State.    It  has  been  decided  by  our  Federal  courts  that  this  clause 


CONSTITUTIONAL  LAW  597 

has  nothing  to  do  with  distinctions  founded  on  domicile;  such  a 
person  has  the  same  right  under  the  State  laws  which  a  native- 
born  citizen  domiciled  elsewhere  would  have  and  no  other  rights. 
But  since  the  adoption  of  the  Fourteenth  Amendment,  one  bom 
or  naturalized  in  the  United  States  and  subject  to  its  jurisdiction 
is,  without  reference  to  State  Constitutions  or  laws,  entitled  to 
all  the  privileges  and  immunities  secured  by  the  Constitution  to 
its  citizens.  Neverthless  a  State  law  prohibiting  marriage 
between  negroes  and  white  persons  is  not  unconstitutional. 

Fugitives. 

To  facilitate  the  administration  of  justice  in  the  several 
States  of  the  Union  the  succeeding  two  clauses  of  the  Con- 
•stitution  were  enacted,  providing:  "A  person  charged  in  any 
State  with  treason,  felony  or  other  crime,  who  shall  flee  from 
justice,  and  be  found  in  another  State,  shall,  on  demand  of  the 
executive  authority  of  the  State  from  which  he  fled,  be  delivered 
up,  to  be  removed  from  the  State  having  jurisdiction  of  the 
crime.  No  person  held  to  service  or  labor  in  one  State,  under  the 
laws  thereof,  escaping  into  another,  shall  in  consequence  of  any 
law  or  regulation  therein,  be  discharged  from  such  service  or 
labor  but  shall  be  delivered  up,  on  claim  of  the  party  to  whom 
such  service  or  labor  may  be  due." 

It  has  been  often  made  a  question,  says  Story  in  his  "Com- 
mentaries," how  far  any  nation  is  by  the  law  of  nations,  and 
independent  of  any  treaty  stipulations,  bound  to  surrender  upon 
demand  fugitives  from  justice,  who,  having  committed  crime  in 
another  country,  have  fled  thither  for  shelter.  Mr.  Chancellor 
Kent  considers  it  clear  upon  principle,  as  well  as  authority,  that 
every  State  is  bound  to  deny  an  asylum  to  criminals  and,  upon 
application  and  due  examination  of  the  case,  to  surrender  the 
fugitive  to  the  foreign  State  where  the  crime  has  been  committed. 
It  is  now  settled  that  nations  can  only  claim  from  each  other  the 
surrender  of  fugitives  under  treaty  stipulations.  Regardless  of 
the  international  law  on  the  subject  it  cannot  be  questioned  that 
it  is  of  vital  importance  to  the  public  administration  of  criminal 
justice,  and  the  security  of  the  respective  States,  that  criminals 
who  have  committed  crimes  therein  should  not  find  an  asylum  in 
other  States,  but  should  be  surrendered  up  for  trial  and  punish- 
ment. It  discourages  crimes,  cuts  off  the  chances  from  escape 
from  punishment  and  promotes  harmony. and  good  feeling  among 
the  States.  A  fugitive  from  justice  may  be  arrested  and  detained 
until  a  formal  requisition  can  be  made  by  the  proper  authority. 


598  CONSTITUTIONAL  LAW 

The  alleged  crime  must  have  been  committed  in  the  State  from 
which  the  party  is  claimed  to  be  a  fugitive  and  he  must  be  actually 
a  fugitive  from  that  State.  It  is  not  necessary  that  the  crime 
charged  should  constitute  an  offense  at  the  common  law.  It  is 
enough  that  it  is  a  crime  against  the  laws  of  the  State  from  which 
the  fugitive  fled. 

The  next  clause  above  quoted  was  introduced  into  the  Con- 
stitution solely  for  the  benefit  of  the  slave-holding  States,  to 
enable  them  to  reclaim  their  fugitive  slaves  who  escaped  into 
other  States  where  slavery  was  not  tolerated.  As  slavery  no 
longer  exists  it  is  not  necessary  to  comment  on  this  provision,  but 
it  is  important  to  bear  in  mind  that  this  clause  includes 
apprentices. 

Admission  of  New  States. 

The  third  section  of  Article  IV  regulates  the  manner  in  which 
new  States  shall  be  admitted  into  the  Union  and  Territories 
governed  to  the  following  effect :  "New  States  may  be  admitted 
by  the  Congress  into  this  Union ;  but  no  new  State  shall  be  formed 
or  erected  within  the  jurisdiction  of  any  other  State;  nor  any 
State  be  formed  by  the  junction  of  two  or  more  States,  nor  parts 
of  States,  without  the  consent  of  the  Legislatures  of  the  States 
concerned,  as  well  as  of  the  Congress.  The  Congress  shall  have 
power  to  dispose  of  and  make  all  needful  rules  and  regulations 
respecting  the  territory  or  other  property,  belonging  to  the  United 
States;  and  nothing  in  this  Constitution  shall  be  so  construed  as 
to  prejudice  any  claims  of  the  United  States,  or  of  any  particular 
State."  The  people  of  any  Territory  may  peaceably  meet 
together  in  primary  assemblies,  or  in  conventions  chosen  for  such 
assemblies,  for  the  purpose  of  petitioning  Congress  to  abrogate 
the  territorial  government,  and  to  admit  them  into  the  Union  as 
an  independent  State,  and  if  they  accompany  their  petition  with 
a  Constitution  framed  and  agreed  on  by  their  primary  assemblies, 
or  by  a  convention  of  delegates  chosen  by  such  assemblies,  there 
is  no  objection  to  their  power  to  do  so,  nor  to  any  measures  which 
may  be  taken  to  collect  the  sense  of  the  people  in  respect  to  it; 
provided  such  measures  be  prosecuted  in  a  peaceable  manner.  In 
subordination  to  the  existing  government,  and  in  subserviency 
to  the  power  of  Congress  to  adopt,  reject  or  disregard  them  at 
their  pleasure. 

The  Supreme  Court  has  decided  that  the  power  of  Congress 
to  dispose  of  the  public  lands  is  not  limited  to  making  sales,  but 


CONSTITUTIONAL  LAW  599 

they  may  be  leased.  No  property,  however,  belonging  to  the 
United  States  can  be  disposed  of  except  by  the  authority  of  an 
act  of  Congress.  The  United  States,  under  the  present  Con- 
stitution, cannot  acquire  territory  to  be  held  as  a  colony,  to  be 
governed  at  its  will  and  pleasure.  But  it  may  acquire  territory 
which,  at  the  time,  has  not  a  population  that  fits  it  to  become  a 
State,  and  may  govern  it  as  a  territory,  until  it  has  a  population 
which,  in  the  judgment  of  Congress,  entitles  it  to  be  admitted  as 
a  State  of  the  Union.  During  the  time  it  remains  a  territory 
Congress  may  legislate  over  it,  within  the  scope  of  its  con- 
stitutional powers  in  relation  to  citizens  of  the  United  States. 
The  territory  thus  acquired  is  acquired  by  the  people  of  the 
United  States,  for  their  common  and  equal  benefit. 

Republican  Form  of  Government  Guaranteed. 

The  fourth  section  of  Article  IV  provides  that  the  United 
States  shall  guarantee  to  every  State  in  the  Union  a  republican 
form  of  government,  and  shall  protect  each  of  them  against 
invasion;  and  on  application  of  the  Legislature  or  of  the 
Executive  (when  the  Legislature  cannot  be  convened),  against 
domestic  violence.  Without  a  guarantee  the  assistance  to  be 
derived  from  the  National  Government,  in  repelling  domestic 
danger  which  might  threaten  the  existence  of  the  State  Con- 
stitution, could  not  be  demanded  as  a  right  from  the  National 
Government.  The  Federalist,  in  commenting  upon  this  important 
clause,  says :  "Governments  of  dissimilar  principles  and  forms 
have  been  found  less  adapted  to  a  Federal  coalition  of  any  sort 
than  those  of  a  kindred  nature."  By  virtue  of  this  clause  a  State 
cannot  exchange  a  republican  for  ah  anti-republican  constitution, 
and  before  a  State  can  be  admitted  into  the  Union  it  must  submit 
a  constitution  in  conformity  with  the  principles  of  a  republican 
form  of  government.  Protection  against  domestic  violence  is 
added  with  equal  propriety.  Every  pretext  for  intermeddling 
with  the  domestic  concerns  of  any  State,  under  color  of  pro- 
tecting it  against  domestic  violence,  is  taken  away  by  that  part  of 
the  provision  which  renders  an  application  from  the  Legislature 
or  executive  authority  of  the  State  endangered  necessary  to  be 
made  to  the  general  Government  before  its  interference  can  be  at 
all  proper.  This  clause,  however,  becomes  an  immense  acquisition 
of  strength  and  additional  force  to  the  aid  of  any  State  govern- 
ment in  case  of  an  internal  rebellion  or  insurrection  against  lawful 
authority. 


6oo  CONSTITUTIONAL  LAW 

Amendments. 

Article  V  of  the  Constitution  determines  the  mode  in  which 
amendments  thereto  may  be  made.  "The  Congress,  whenever 
two-thirds  of  both  houses  shall  deem  it  necessary,  shall  propose 
amendments  to  this  Constitution,  or,  on  the  application  of  the 
Legislatures  of  two-thirds  of  the  several  States,  shall  call  a  con- 
vention for  proposing  amendments,  which,  in  either  case,  shall  be 
valid  to  all  intents  and  purposes,  as  part  of  this  Constitution,  when 
ratified  by  the  Legislatures  of  three-fourths  of  the  several  States, 
or  by  conventions  in  three- fourths  thereof,  as  the  one  or  the  other 
mode  of  ratification  may  be  proposed  by  the  Congress;  provided, 
that  no  amendment,  which  may  be  made  prior  to  the  year  1808 
shall  in  any  manner  affect  the  first  and  fourth  clauses  in  the  ninth 
section  of  the  first  article ;  and  that  no  State,  without  its  consent, 
shall  be  deprived  of  its  equal  suffrage  in  the  Senate."  It  is  obvious 
that  no  human  government  can  ever  be  perfect;  and  that  it  is 
impossible  to  foresee  or  guard  against  all  the  exigencies  which 
may,  in  different  ages,  require  different  adaptations  and  modifi- 
cations of  powers  to  suit  the  various  necessities  of  the  people. 
Two  methods  of  effecting  amendments  are  provided  for,  to  wit: 
One  at  the  instance  of  the  Government  itself,  through  the  instru- 
mentality of  Congress;  the  other  at  the  instance  of  the  States, 
through  the  instrumentality  of  a  convention.  Twelve  of  the 
amendments  adopted  were  proposed  by  Congress,  the  balance  by 
the  second  method.  Ample  time  for  deliberation,  both  in  propos- 
ing and  ratifying  amendments,  is  given,  and  the  system  has  proven 
very  successful  in  operation. 

The  most  important  provisions  of  Article  VI  are,  first,  that 
the  Constitution  and  laws  of  the  United  States  shall  be  the 
supreme  law  of  the  land ;  and,  second,  that  no  religious  test  shall 
ever  be  required  as  a  qualification  to  any  office  or  public  trust  un- 
der the  United  States.  A  law  by  the  very  meaning  of  the  term 
includes  supremacy,  and  if  individuals  enter  into  a  state  of  society, 
the  laws  of  that  society  must  be  the  supreme  regulator  of  their 
conduct.  The  clause  mentioned  only  declares  a  truth  which  flows 
immediately  and  necessarily  from  the  institution  of  a  national 
government. 

The  restriction  against  any  religious  test  as  a  qualification  to 
office  needs  no  comment.  The  religious  history  of  England  and 
other  continental  countries  convinced  the  framers  of  our  Con- 
stitution of  the  dangers  of  any  alliance  between  church  and  State, 
and  this  clause  was  consequently  inserted. 


CONSTITUTIONAL  LAW  6oi 

The  seventh  and  last  article  of  the  Constitution  provides  that 
nine  States  must  ratify  the  Constitution  to  make  same  effective. 

Amendments  to  the  Constitution. 

Fifteen  amendments  to  the  Constitution  have  been  made  since 
,  its  adoption.  The  first  ten  amendments  were  proposed  by  Con- 
gress at  their  first  session  in  1789.  The  eleventh  was  proposed  in 
1794;  the  twelfth  in  1803;  the  thirteenth  in  1865;  the  fourteenth 
in  1866,  and  the  fifteenth  in  1869. 

The  most  general  objection  urged  against  the  Constitution 
was  that  it  did  not  contain  a  full  Bill  of  Rights.  A  Bill  of 
Rights  has  been  defined  as  a  freeman's  title  to  protection,  and 
constitutes  a  limitation  upon  the  powers  of  government.  Let  us, 
therefore,  enter  upon  a  brief  consideration  of  the  amendments 
regarding  subjects  properly  belonging  to  a  Bill  of  Rights. 

The  first  amendment  and  perhaps  the  most  important  pro- 
vides that  "Congress  shall  make  no  law  respecting  an  estab- 
lishment of  religion,  or  prohibiting  the  free  exercise  thereof; 
or  abridging  the  freedom  of  speech  or  of  the  press ;  or  the  right 
of  the  people  to  peaceably  assemble,  and  to  petition  the  Govern- 
ment for  a  redress  of  grievances." 

The  Constitution  makes  no  provision  for  protecting  the 
citizens  of  the  respective  States  in  their  religious  liberty;  that 
is  left  to  the  State  Constitutions  and  laws;  nor  is  there  any 
inhibition  imposed  by  the  Constitution  qf  the  United  States  in  this 
respect  on  the  States.  The  First  Amendment  deprived  Congress 
of  all  legislative  power  over  men's  religious  opinion;  but  left  it 
free  to  reach,  practices  which  are  in  violation  of  social  duties  or 
subversive  of  good  order ;  it  may  therefore  prohibit  polyg^amy  in 
the  Territories  though  the  practice  of  it  is  alleged  to  be 
sanctioned  by  the  religion  of  the  inhabitants. 

The  next  most  important  amendment  was  the  Third,  provid- 
ing that  "the  right  of  the  people  to  be  secure  in  their  persons, 
houses,  papers  and  effects,  against  unreasonable  searches  and 
seizures,  shall  not  be  violated ;  and  no  warrant  shall  issue  but 
upon  probable  cause  supported  by  oath  or  affirmation,  and  par- 
ticularly describing  the  place  to  be  searched  and  the  persons  or 
things  to  be  seized."  This  provision  seems  indispensable  to  the 
full  enjoyment  of  the  rights  of  personal  security,  personal  liberty 
and  private  property. 

The  Fifth  Amendment  protects  every  citizen  of  the  United 
States  from  being  twice  put  in  jeopardy  of  life  or  limb  for  the 
same  offense,  from  being  a  witness  in  any  criminal  case  against 


6o2  CONSTITUTIONAL  LAW 

himself,  and  from  being  deprived  of  his  life,  liberty  or  property 
without  due  process  of  law.  This  amendment  also  provides  that 
no  person  shall  be  held  to  answer  for  a  capital  or  other  infamous 
crime  unless  on  a  presentment  or  indictment  of  a  Grand  Jury. 

In  all  criminal  prosecutions,  under  the  provisions  of  the 
Sixth  Amendment  to  the  Constitution,  the  accused  shall  enjoy  the 
right  to  a  speedy  and  public  trial,  by  an  impartial  jury  of  the 
State  and  district  wherein  the  crime  shall  have  been  committed, 
which  district  shall  have  been  previously  ascertained  by  law,  "and 
to  be  informed  of  the  nature  and  cause  of  the  accusation ;  to  be 
confronted  with  the  witnesses  against  him ;  to  have  compulsory 
process  for  obtaining  witnesses  in  his  favor;  and  to  have  the 
assistance  of  counsel  for  his  defense." 

Any  person  charged  with  a  crime  in  the  courts  of  the  United 
States  has  a  right,  before  as  well  as  after  indictment,  to  the 
process  of  the  Court  to  compel  the  attendance  of  his  witnesses. 

The  right  of  trial  by  jury  is  preserved  by  the  Seventh 
Amendment  in  all  controversies  where  the  amount  involved  shall 
exceed  twenty  dollars  in  value.  By  the  terms  of  the  Eighth 
Amendment  excessive  bail  shall  not  be  required,  nor  excessive 
fines  imposed,  nor  cruel  and  unusual  punishment  inflicted.  The 
Ninth  Amendment  reserves  to  the  people  all  rights  not  specifically 
vested  in  the  United  States  under  the  Constitution. 

The  Eleventh  Amendment  provides  that  "the  judicial  power 
of  the  United  States  shall  not  be  construed  to  extend  to  any  suit 
in  law  or  equity  commenced  or  prosecuted  against  one  of  the 
United  States  by  citizens  of  another  State,  or  by  citizens  or  sub- 
jects of  any  foreign  State."  The  Twelfth  Amendment  regarding 
the  election  of  the  Executive  has  already  been  considered. 

The  Thirteenth,  Fourteenth  and  Fifteenth  Amendments  were 
made  necesssary  by  the  complications  arising  out  of  civil  war 
troubles.  These  amendments  abolish  slavery,  define  citizenship, 
apportion  Representatives,  define  disqualification  for  office  and 
extend  the  right  of  suflFrage  to  all  citizens  regardless  of  color  or 
previous  condition  of  servitude. 


INDEX 


Abandonment  of  trade  mark,  328 

Abatement    of   nuisance,   423 

Acceptor  of  Bill  of  Exchange,  Li- 
ability of,   121 

Accommodation    indorser,    115 

Accounting,  Partnership,  78 

Accounts,    Filing,    533 

Acknowledgment,    181 

Action   for  money,  492 

Adjustment  between  partners,  80 

Administration,  497 

Administration,   Acts  of,   529 

Administration,    Right    to,    501 

Administrator's   appointment,   499 

Administrator's   liability,  510 

Admiralty,    Jurisdiction,    592 

Admission  of  New  States.  598 

Admission  of  partners,  66 

Adopted   children,    171 

Adoption  of  children,  362 

Advancements,  368,   541 

Advances  in  partnership,  Repayment 
of,   79 

Advantages  of  incorporation,   106 

Advertisement,  Contract  by,  452 

Advertisement,  Executors'  and  Ad- 

.  ministrators',   513 

Agency  of  bank  officials,  307 

Agency  of  husband  and  wife,  359 

Agency  of  partner,  62 

Agents,  Sales  by,  351 

Amendments,  Constitutional,  600, 
6or.  602 

Ancillary  administration,  509 

Anti-trust  laws,  568,  569 

Application    for   trade    mark,    325 

Appointment   of   guardians,    374 

Apportionment  of  rent,   146 

Appraisement,  515 

Architect   defined,  447 

Articles   of   Confederation,   547 

Assets  of  estate,  519 

Assignment.  46 

Assignment  for  benefit  of  creditors. 
Partners'  power  to  make,  62 

Assignments  of  trade  marks,  327 

Attestation,   180 


Bailee,  Larceny  by.  405 
Bankruptcy  of  partnership.  73,  74 


Bankruptcy,  Power  of  Congress  in, 
571 

Bills  of  Exchange,  109 

Bond  of  administrator,  511 

Book  defined,  336 

Borrowers  in  Building  and  Loan  As- 
sociations, 438 

Boundaries,  162 

Boycott,  399 

Breach  of  contract,  52,  53,  54 

Builder,  Reciprocal  duties  between 
architect  and,  460 

Builder's  liability,  451 

Building  and  Loan  Associations, 
Management  of,  430,  431 

Building  and  Loan  Associations, 
Membership  in,  432 

Building  Associations,  426 

Building  contracts,  447 

Burial  lots,  136 

By-laws  of  bank,  306 

By-laws  of  building  societies,  433 

Calls  on  stock,  98 

Capital  stock  corporations,  314 

Cashier,  311 

Certificate  of  architect,  457 

Certified  checks,   130 

Characteristics  of  negotiable  instru- 
ments, 108 

Chattels,  517 

Checks,  no.  130 

Chief  Executive,  582 

Child,  Parent  and,  361 

Child's  earnings,  Rights  to,  365 

Civil  law.  18,  19 

Clearing  house,  316,  317 

Cohabitation,  353 

Collateral  descent,  174 

Commerce.  Regulation  of,  559 

Common  Law.  19 

Common  Rights  of,  163 

Competency  to  make  negotiable  in- 
stntments.  113 

Conditional  estates.  165 

Conditional  fees,  157 

Conflict  of  laws.  131 

Conjrress.  Powers  of.  552,  553 

Consideration,  31,  36 

Consideration  in  bills  and  notes.  III 


(603) 


6o4 


INDEX 


.Conspiracy,  398 

Constitutional  law,  547 

Construction  of  deeds,  185 

Contracts,  21 

Contract  for  servant,  378 

Contributory    negligence,    391 

Conversion,    135 

Conveyancing,   133,    170 

Copyright  procedure,  ^^y,  338 

Copyrights,  333 

Corporations,    87 

Corporations  defined,  88 

Cost  of  accounting,  80 

Covenants,   182,   183 

Creditor's  right  to  administer,  504 

Crime   defined,    396 

Crimes   in   business,   395 

Criminal  responsibility,  396,  397 

Decedent's  business,  521 

Deeds,   177 

Deeds  by  partners,  67 

Defences  against  negotiable  instru- 
ments,   126 

Delivery  in    sales,   348 

Delivery  of  deed,   181 

Descent,  Title  by,  171 

Detainer,    149 

Development  of  Negotiable  Instru- 
ment Law,  107 

Directions  for  renting  property,  152, 

153 
Directors  as  trustees,  309 
Directors,   Board  of,   103,    104 
Directors  of  bank,  307 
Discharge  of  contract,  50,  51,  57 
Discharge  of  employee  379 
Discharge  of  liens.  479 
Discharge  of  negotiable  paper,  129 
Dishonor,  Notice  of,  123 
Disputed  claims,  531 
Dissolution  of  building  societies,  105 
Dissolution  of  partnership,  76,  77 
Distress,   142 

Distress  Goods,  exempt,  143 
Distribution  of  partnership  assets,  78 
Dividends,  lOi 

Dividends,  To  whom  payable,  518 
Divine  Law,  18 
Domestic  corporations,  89 
Domestic  Relations,  352 
Dormant  partners,  71 
Dower,  159 
Drafts,  131 
Drain  and  drip,  136 
Duress,  42,  4.^ 
Duties  of  children,  367 


Easement,  163 
Electoral  Colleger  583 
Elements  of  negotiability,  108 
Emancipation,  367 
Embezzlement  defined,  400 
Employer's    liability.    Limitation    of, 

384 

Employment,  Contract  of,  378,  379 

Employment,  Special,  384 

Employment  Termination  of,  381 

Entry  and  detainer,  149 

Equity  of  redemption,  166 

Equity,  Partner's  rights  in,  72,  73 

Estate,  Definition  of,  133 

Estate  funds,  Safe  Keeping  of,  520 

Estates  by  entireties,  170 

Examination  of  corporate  books,  102 

Execution  of  deeds,  180 

Executive  Branch  of  Government,  581 

Executor,  496 

Executor's  liability,  54!; 

Exemption  allowed  widow,  526 

Ex  post  facto  laws,  575 

Extinguishment  as  defence  to  nego- 
tiable paper,  126 

Extinguishment  of   liens,  480 

Extradition,  597 

"Extras,"  458 


Fee  simple,  156 

Fellow  servants.  Rule  g-oveming,  392 

Fines  in  building  societies,  434 

Fire,  Protection  against,  154 

Fixtures  154,  160 

Forcible  entry  and  detainer,  149 

Foreign   administration,  506 

Foreign  corporations,  89 

Forgery,  401 

Formation  of  contracts,  23 

Formation  of  corporations,  90 

Fraud,  42,  350^ 

Frauds  and  perjuries,  36,  37 

Fraudulent  stock  subscriptions,  95 

Fugitives,  597 

Funeral  expenses,  527 


Gifts  between  parent  and  child,  365 
Good  Will,  Partnership,  80 
Governmental  divisions,  550,  551 
Gratuitous  promise,  31 
Ground  rents,  137 
Guarantees  of  Constitution,  599 
Guardian  and  ward,  370 
Guardians  ad  litem,  373 
Guardianship  in  Socage,  371 


INDEX 


60s 


Habeas  Corpus,  574 

Heirs,  156 

Hereditaments,  134,  163 

Hiring,  Implied  Contracts  of,  380 

Husband's  curtesy,   158 

Husband's  rights,  354 

Illegality,   126 

Impersonal  trade  marks,  321 
Implied  leases,  138 
Incapacity,  126 
Income  tax,  556 
Indorsement,   I16 
Indorser,  115 

Innocent  holder  for  value,  117 
Insolvent  estates,  531 
Interpretation,  47,  48,  49,  50 
Interpretation  of  Constitution,  579 
Interpretation  of  libel,  412 
Interpretation  of  negotiable  instru- 
ment, 114 
Intestacy,  172 
Intoxication,  25 
Inventory,  512 

Joint  administration,  514 

Joint  stock  companies,  84 

Joint    stock    companies.    Dissolution 

of,  8s 
Joint  tenants,  170 
Judicial  power,  591 
Jury,  Trial  by,  594 
Juvenile  courts,  370 

Kinds  of  negotiable  instruments,  109 

Labor  Unions,  570 

Land,  134 

Larceny,  403 

Larceny  by  bailee,  40S 

Lateral   support,   136 

Law  classified.   17 

Law  defined.   17 

Lease  defined,  138 

Leases  by  partners,  67 

Legacies,  Payment  of,  538 

Legacies,  Specific.  539 

Legacies  to  Creditor,  535 

Legality  of  contract.  43,  44.  45 

Legal  proceedings.  Partner's,  65 

Legal  tender,  485 

Legal  tender  acts.  572 

Liabilities  of  husband,  355 

Liabilities    of   parties   to   negotiable 

paper,  121 
Liability  of  architect.  453 
Liability  of  partner,  62 
Libel,  406 


Lien  of  bank  on  deposits,  305 
Lien  of  decedent's  debts.  528 
Lien  of  mortgage.   168 
Lien,  Operation  01,  475 
Life  tenants,  158 
Limited  partnership,  82 
Liquidated  damages,  455 
Loan,  486 
Lunacy  of  partner,  77 

Maintenance  of  children,  636 

Majority  rule  in  partnership,  69 

Malicious  prosecution,  424 

Management  of  corporations,  103 

Marriage  defined,  353 

Married  women's  powers  in  regard 
negotiable    instruments,    114 

Marshall's  Definition  of  Corpora- 
tions, Chief  Justice,  88 

Master  and  servant,  376 

Master's  duty  to  servant,  387 

Master's  rights  and  liabilities,  383 

Mechanics'  Liens,  147,  466 

Membership  in  corporation,  93 

Merger,  55 

Mining  leases,  151 

Minor's  power  to  contract,  23,  24 

Misrepresentation,  39,  40,  41 

Mistake,  350 

Mistake  affecting  sale,  343 

Money  defined,  485 

Mortgages,  166 

Mortgages,  Building  and  Loan,  441 

Municipal  law,   18 

Mutual  savings  bank,  314 

Name,  Partnership,  61 

Natural  law,  17 

Navigable  rivers,  162 

Navigable  waters,  561 

Negligence  as  to  leased  property.  150 

Negotiable  instruments,  107 

Negotiable  instruments  definition,  107 

Negotiable    paper,     Partner's    rights 

regarding,  66 
Next  of  kin,  502 
Non  compos  mentis,  24,  25 
Non-payment  of  rent,  141 
Novation,  70 
Nuisance,  417 
Nuisance,  Abatement  of,  423 

Offer  and  acceptance.  25.  36.  37,  28, 29 
Operation  of  contract,  45 
Order  of  payment  in  decedent's  es- 
tate, 536 


6o6 


INDEX 


Parent  and  child,  361 

Parent's  duties,  363 

Parties  to  sale,  342 

Partition,  184 

Partnership     creditors,     Decedent's 

estate,  532 
Partnership  creditors.  Rights  of,  63 
Partnership    creditors,     Rights     and 

remedies  of,  69 
Partnerships,  Definition,  59 
Partner's  liability  in  tort,  67 
Payment  for  honor,  125 
Payment  of  money,  487 
Penalties,  455 

Penalties  for  illegal  distress,  144 
Personal     defences     to     negotiable 

paper,   127 
Personal  names,  322 
Personal  trade  marks,  321 
Pews,  136 
Picketing,  399 
Piracy,  337 

Powers  of  corporations,  91 
Powers  of  partners,  63 
Powers  of  President,  588 
Pre-emption,   102 
Prescription,   176 
Presentment  for  payment,  119 
President  of  bank,  310,  311 
Priorities  of  liens,  477 
Priority  of  decedent's  debts,  526 
Private  corporations,   89 
Privileged  communications,  409 
Promissory  notes,  109 
Property,  Husband's  and  wife's,  356 
Protection  against  fire,  154 
Protest,  122 

Publication  of  copyright,  335 
Public  corporations,  88 
Purchaser   of   a  bill   after   maturity, 

118 
Purchase,  Title  by,  171 

Qualification  for  President,  586 
Qualified  indorsement,  117 

Railroad    company    duties    to    em- 
ployees, 390 
Railroad  rates,  566 
Real  estate,  133 
Real  estate  of  decedent,  524 
Reality  of  consent,  37 
Receiver  in  partnership,  81 
Recording,  167 
Recording  deeds,  181 
Record-title,   186 
Recovery  of  possession,  141,  148 
Re-entry,  140 


Registration  of  trade  marks,  321 

Registry  of  transfers,  99 

Release,  56 

Release  as  extinguishment,  127 

Release  of  lien,  482 

Religious  corporations,  89 

Remainders,  169 

Remedies  for  nuisance,  422 

Remedies  of  stockholders,  100 

Removal  of  executor  and  adminis- 
trator, 542 

Rent,  137 

Rent  apportioned,  146 

Rents,  Right  to,  525 

Renunciation,  Executors'  and  admin- 
istrators',  506 

Repairs,  139 

Repayment  of  partnership  advances, 
79  . 

Requisites  of  patent,  125 

Rescission  of  building  contract,  456 

Rescission  of  membership  in  corpo- 
rations, 96 

Resignation  of  executor  and  admin- 
istrator, 542 

Restrictive  indorsement,  116 

Reversions,  169 

Revocation  of  check,  305 

Rights  and  duties  of  guardians,  375 

Rights  of  holder  in  due  course,  118 

Rights  of  stockholders,  100 

Sales  defined,  340 

Sales  of  personal  property  of  de- 
cedent,  523 

Samples,  Sales  by,  344 

Savings  banks,  313 

Seal,   Contracts  under,  30 

Separate  creditors  of  partner,  72 

Servant   defined,  376 

Shares,  Forfeiture  of,  96 

Sherman  Act,  570 

Sidewalk.  Liability  to  repair,  151 

Slander  by  partner,  68 

Special  indorsement,  116 

Special  partners,  83 

Specific  lee-acies,  536 

Statutory  dower.   i.t;q 

Stockholders,   Liability  of,   97 

Stockholders'  suits  in  Building  and 
Loan  Associations,  439 

Stock  in  Building  Associations,  428 

Sub-Contractor,  A62 

Subject  matter  of  trade  marks,  320, 
321 

Sub-leasing,  140 

Subscribers,  93,  607 

Subscriptions,  Stock,  94 


INDEX 


607 


Successive  administrators,  541 
Suits  between   partners,  75 
Suits  by  partners,  68 
Supra   protest,   122 
Sureties,  465 
Surrender,  147 
Survivor,  Rights  of,  360 

Tariffs,  562,  563,  564 

Taxes,  Power  to  impose,  554 

Taxes,  Tenant's  liability,  147 

Tellers,  Paying  and  Receiving,  312 

Tenant  at  sufferance,  165 

Tenant  at  will,  165 

Tenants  in  common,  170 

Tender,  349 

Tender  of  rent,  145 

Tenement,  134 

Test  of  copyright,  :H37 

Title,  How  acquired,  170 

Torts  of  children,  366 

Trade  marks,  319 

Trade  name,  320 

Transfer  of  partnership  property,  61 

Transfer  of  shares,  98 

Treason,  595 

Treaty  making  power,  589 

Trees,  162 


Trespass,  413 
Trusts,  567 
Trust- Estates, 


168 


Ultra  Vires  Acts,  105 

Undue  Influence,  42,  43 

Unfair  trade,  329,  331 

Unpublished  works.   Registration  of, 

339 
Unwritten  law,  18 
Usage  in  banking,  306 
Uttering  forged  paper,  401 

Vacancies     in     officers     of    corpora- 
tion, 93 

Wages  of  married  women,  356 
Wages,     Recovery     from     decedent's 

estate,  526 
Warranties  in  sales,  344 
Way-going  crop,  i6i 
Way,  Right  of,  164 
Ways  of  necessity,  164 
Widow's  exemption,  526 
Wife's  services,  3^5 
Wills,  Title  by.  187.  188 
Withdrawals,  435 
Written  law,  18 


JJC  tamtMl  REOONM.  UtMKI  ftoun 

Flrlrl 

A     000  688  443     \ 


;W;»,o     ;.).;0 


